The Labor Department announced Tuesday that it was moving ahead with a rule meant to prevent retirement advisers from getting kickbacks to recommend high-fee investment products.
Labor Secretary Thomas Perez and White House National Economic Council Director Jeffrey Zients announced in a blog post that the agency was issuing a proposed rule on investment advisers, one meant to “protect Americans saving for retirement and crack down on conflicts of interest in retirement advice that are costing middle-class and working families billions of dollars every year.”
President Obama said the move, which was opposed by the financial services industry, was part of his focus on the middle class.
“Current loopholes allow Wall Street brokers and other financial advisers to benefit from backdoor payments and hidden fees if they talk responsible Americans into buying bad retirement investments — with high costs and low returns — instead of recommending quality investments,” Obama said.
The proposed rule would “ensure that the people providing you with retirement investment advice are working in your best interest,” Perez and Zients wrote.
Currently, not all investment professionals are held to such a fiduciary standard, which requires that they prioritize investors’ financial interests.
Details about the proposed rule were not immediately available, although the note promised that it would include “flexible ways” for advisers to comply, including through a new “best interest contract” they could enter into with clients.
Financial services representatives have argued that applying the rule to all advisers would make it unaffordable for them to offer advice to all customers. They also said that investment professionals have long been regulated by the Securities and Exchange Commission.
Perez and Zients noted that the rules have not been updated in 40 years and that Americans now have $7 trillion invested in individual retirement accounts and more than $4 trillion in 401(k) plans or similar products.
The industry will have 75 days to comment on the rule. Obama first called for the new rule in February.
