President Obama proposed regulations Monday that he said would prevent financial advisers from “bilking” middle-class savers by accepting hidden fees to promote weak investment funds.
“If your business model rests on taking advantage, bilking hardworking Americans out of their retirement money, then you shouldn’t be in business,” Mr. Obama said at the headquarters of the senior citizens lobby AARP in Washington.
The president directed the Labor Department to draft regulations that would hold financial brokers to a tougher standard known as fiduciary duty, requiring them to act in their clients’ best interests. Under current rules, brokers are held to a lower standard that requires them to believe their advice is “suitable” for an investor.
Among those attending the president’s announcement was Sen. Elizabeth Warren, Massachusetts Democrat and a frequent critic of Wall Street.
Some Wall Street firms and Republican lawmakers oppose the move, warning it will raises costs for investors or result in fewer services. One industry group said the administration’s move could discourage investors from working with trusted brokers.
“People should be protected from unfair and deceptive practices,” said Brian Graff, executive director of the National Association of Plan Advisors. “But all indications are that this rule will block Americans from working with the financial advisers and investment providers they trust simply because they offer different financial products — like annuities and mutual funds — with different fees. This rule could even restrict who can help you with your 401(k) rollover.”
The Certified Financial Planner Board of Standards Inc. called Mr. Obama’s move “a critical step toward protecting American investors and their retirement savings.” Financial Services Institute President and CEO Dale Brown said individual retirement account investors “are already protected by robust federal and state rules governing the retirement market.”
Mr. Brown said the review process for the proposed White House rules is likely to be lengthy, and his group wants to ensure “that any final rule avoids serious unintended consequences for Main Street investors.”
SaveOurRetirement.org campaign, consisting of seven groups including the AARP and the AFL-CIO, applauded Mr. Obama’s action.
“As the nation’s most prominent retiree, labor, consumer, and financial reform organizations, we welcome President Obama’s support for protecting American workers and retirees from harmful conflicts that eat away at retirement savings,” the coalition said in a statement.
Mr. Obama warned of “special interests who are going to fight [the proposed rule] with everything they’ve got.”
“These industry doomsday predictions have not come true in other countries that have taken even more aggressive action on this issue than we’re proposing,” the president said.
The president said many financial advisers already carry out their work with their clients’ best interests in mind, but he said there are also “less than scrupulous” brokers who accept “backdoor payments” to promote mutual funds that don’t have healthy rates of return.
The White House said such conflicts of interest cost investors about $17 billion per year.
Investors with trusted advisers have 58 percent more assets than those who do not, Mr. Graff said. He called Mr. Obama’s proposal “a dangerous regulatory overreach that should be stopped before it does serious harm to the retirement security of millions of working — and retired — Americans.”
Republicans also are resisting the proposal. Daniel Gallagher, a Republican appointee to the Securities and Exchange Commission, has criticized the administration’s effort as “widely unpopular rule-making.”
The Labor Department attempted to pass a similar proposal reforming fiduciary standards in 2010 but to no avail. The proposal was opposed by Republicans, financial firms and some Democrats who claimed the previous proposal was overly broad and too restrictive.
⦁ Christopher White contributed to this report.