President Barack Obama will head to the AARP Monday afternoon to announce a change in policies affecting retirement accounts -- part of a series of moves the White House says is aimed at boosting the middle class.
Obama will call on the Department of Labor to develop a rule that would require retirement advisers to abide by a “fiduciary” standard -- mandating that they put their clients’ interest ahead of making a profit.
Unlike doctors or lawyers, financial advisers are not obligated to look out for their clients’ best interests, said Labor Secretary Tom Perez. He said the change would modernize a 40-year-old rule.
“Consumers deserve to know that their adviser is working for them,” he said. Currently, advisers recommendations for retirement plans, including 401(k) plans, must be considered “suitable” but the White House says that can mean high costs and low returns. A report by the White House Council of Economic Advisers estimates that conflicts of interest cost middle-class families who receive “conflicted advice” an average of 1 percentage point lower annual returns on retirement savings. It estimates the losses at $17 billion a year.
Consumer advocates, including AARP have championed the move, but the industry has resisted the plan since the administration first proposed it in 2010. The Securities Industry and Financial Markets Association said the proposal could raise the cost of savings and hurt those trying to save for retirement.
"We have ongoing concerns that the DOL and the White House have completely ignored the existence of the robust regulatory regime under SEC and FINRA, and this re-proposal could make it harder to save for retirement by cutting access to affordable advice and limiting options for savers,” said the group’s president and CEO Kenneth E. Bentsen.
Jack Bogle, the founder of Vanguard, however, told reporters on a White House conference call that the rule could work.
“Bogle has built a business model to serve income levels that run the gamut,” Perez said. “People with modest income and those wealthy all should benefit from a regime where you have minimized conflict advice.”
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