WASHINGTON — With trillions of dollars at stake, President Obama on Monday called for tougher standards for brokers who manage retirement accounts — setting up another battle with the financial industry.
The president’s proposal is designed to cut down on conflicts of interest in which brokers steer clients into investments that earn the brokers the greatest fees while delivering lower returns.
Under the plan, financial retirement advisers would have a legal “fiduciary” obligation to put their clients’ needs first.
“We should be able to make sure that folks are treated fairly, and give every possible assistance we can so that they can retire with security and dignity,” Obama told a meeting of AARP, which has pushed for the tougher regulation.
The administration first tried to make changes in 2010.
But that effort was stamped out by stiff resistance from the brokerage industry, which fears the rule would limit brokers’ compensation and retirement products.
The US Chamber of Commerce and other business groups argued such regulations would make it hard to charge commission and, therefore, decrease incentives for brokers to take on middle- and lower-income clients.
“This proposal needs a thorough review as it has the potential to cause a detrimental impact on all American savers and the retirement system as a whole,” said Kenneth Bentsen, president and CEO of the Securities Industry and Financial Markets Association, a trade group representing the financial sector.
The White House said its plan would still allow firms to charge commission and use revenue-sharing compensation, just as long as they are putting their clients’ needs first.
Sen. Elizabeth Warren (D-Mass.), Labor Secretary Tom Perez and Sen. Cory Booker (D-NJ) joined Obama at the announcement.
Many retirement advisers work on behalf of their customers, but some recommend investments based on “what kickbacks they can earn for selling a lousy product,” Warren said in a statement.
The impact of bad advice has cost Americans billions.
On average, conflicts of interest result in 1 percentage point lower annual returns on retirement savings, according to the White House Council of Economic Advisers.
That’s $17 billion in losses every year.
The proposed rule winding its way through the Labor Department will go through a months-long public comment period.