Is there a conflict of interest by Wall Street brokers who peddle certain retirement investments onto clients? The Obama administration believes so, and it is now urging the Department of Labor to initiate a new regulation that would crack down on the conflicts of interest that brokers have been accused of having.
President Obama is scheduled to announce a revision on Monday that would require financial brokers to adhere to a “fiduciary standard” in order to place the clients’ interests ahead of brokers’ interests. This policy measure would abide by the president’s 2012 campaign promise of championing the middle class.
The change would reduce the amount on so-called hidden fees that financial advisers receive when they persuade clients to take on more expensive retirement products, which may not even be the best option for the customer. It is estimated that this move by brokers costs middle-class families an average of $17 billion per year.
Jeff Zients, Obama’s top economic adviser, told reporters Sunday in a conference call that the president is ensuring that Americans who take the necessary step to start saving for retirement are getting a fair share of returns from their savings.
“Today, unfortunately, too many financial advisers have sales incentives to steer responsible Americans into bad retirement investments with high fees and lower returns that leave their clients with less in retirement,” said Zients. “Even if you’ve saved what you could and responsibly tried to prepare for retirement, you could end up with tens of thousands of dollars less simply because your adviser isn’t required to put your interests first.”
The White House added that outdated regulations, complicated language and loopholes place middle-class workers at a disadvantage. Although it acknowledged that many industry professionals already make sure that their clients aren’t being fleeced, the White House wants to expand it as part of a standard, industry-wide procedure.
Republicans and the financial industry oppose this measure by arguing that it would diminish compensation for brokers and could very well limit the type of investments that clients can receive – the same industry eliminated a similar proposal put forward a few years ago through intensive lobbying.
“This re-proposal could make it harder to save for retirement by cutting access to affordable advice and limiting options for savers,” said Ken Bentsen, president of the Securities Industry and Financial Markets Association, in an interview with Reuters.
The president will unveil his scheme during a speech hosted by the Association of American Retired Persons (AARP), a group that has employed lobbying efforts to garner support for the rule change. Since middle class issues will likely be an important issue heading into the 2016 presidential race, this could be a prudent step for President Obama and the Democratic party.
It is reported that one of the expected attendees will be Massachusetts Democratic Senator Elizabeth Warren, who some believe will toss her hat into the 2016 primary race for the Democratic nomination, which would place her in contention with possible 2016 presidential candidate Hillary Clinton.
The Obama administration confirmed that further details of the plan would be released in the coming weeks.
