President Obama will call Monday for more regulations on financial advisers, saying investors need to be protected from bad advice by brokers who are more concerned with maximizing their own profits.
In a move that the White House is portraying as a “crackdown on Wall Street,” the president is directing the Labor Department to draft regulations to limit conflicts of interest among retirement brokers, saying they sometimes steer investments to funds that pay them lucrative fees but don’t give investors a healthy return.
The White House Council of Economic Advisers also released a report showing such conflicts cost middle-class families an average of 1 percent per year in lower returns on retirement savings, or a total nationally of about $17 billion annually.
Mr. Obama will make the announcement Monday afternoon at the headquarters of the American Association of Retired Persons in Washington with Democratic Sen. Elizabeth Warren of Massachusetts, a frequent Wall Street critic, and others.
Labor Secretary Thomas Perez said the rule would require brokers “to put the best interests of their clients … above their own.”
“Consumers deserve to know that their adviser is working for them,” Mr. Perez told reporters Sunday in a conference call.
The proposed regulation would hold brokers to a standard known as fiduciary duty, requiring them to work in their clients’ best interests. Under current rules, brokers are held to a lower standard, requiring them to believe their advice is “suitable” for an investor.
The Labor Department has been pushing to update the rules, which were issued in 1975, when many workers didn’t have 401(k) retirement accounts. Such personalized investment tools today hold more than $11 trillion in assets.
Mr. Obama attempted a similar move in 2010, but it stalled in the face of fierce opposition from Wall Street. Last week, Securities and Exchange Commissioner Daniel Gallagher, a Republican, blasted the anticipated move by the administration as “thinly-veiled propaganda designed to generate support for a widely unpopular rulemaking.”
White House officials said they are bolstering their latest effort with economic data to show that many investors are being harmed by unscrupulous brokers without knowing it.
“Independent research shows that these losses result from brokers getting backdoor payments or hidden fees for steering clients’ savings into funds with higher fees and lower returns even before fees, and inappropriate rollovers out of lower-cost retirement plans into higher-cost vehicles,” the White House economic report said.
White House aides also enlisted the support of Vanguard founder John Bogle, who called the proposed rule “a very important step in putting the interests of our nation’s investors first.”
“Clients come first — it’s as simple as that,” Mr. Bogle said.