Wall Street brokers and financial advisors could face new restrictions under a proposal put forth by President Barack Obama on Monday that the White House said could save Americans with retirement accounts billions of dollars each year.
The new rules would hold brokers to a higher "fiduciary standard," which would require them to put their clients' interests ahead of their own financial concerns. The aim is to reduce conflicts of interest and protect Americans from being steered into costly retirement investments that can come with steep fees.
The new rules, which the U.S. Department of Labor is expected to formally propose in the coming months, would impact thousands of brokerages, from large players such as Fidelity, Wells Fargo, Charles Schwab and Raymond James, to smaller, independent shops.
Obama administration officials said the measures should also curtail "hidden fees" that financial advisors can pocket when steering clients into more expensive products that may not be the best option for the investor, but which would lead to higher commissions for the brokers.
The White House said such practices cost working- and middle-class families $17 billion a year.
"I am calling on the Department of Labor to update the rules and requirements that retirement advisors put the best interest of their clients above their own financial interests,” Obama said. “It is a very simple principle. You want to give financial advice? ... You can’t have a conflict of interest.
Wall Street groups have lobbied for years against efforts by the Labor Department to adopt a new fiduciary rule, forcing the department in 2011 to scrap its first draft of the plan.
Secretary of Labor Tom Perez said Sunday in a call with reporters that the new proposal would incorporate feedback from the previous failed attempt.
"We expect that the proposed rule will not ban commissions or any common compensation practices, and it will allow financial advisors to continue providing general education on retirement savings," he said, citing some of the differences with the previous proposal.
Reform advocates said the White House's announcement could give needed attention to the proposal, while critics said it would unnecessarily politicize the issue.
"The president's involvement...on this issue from our perspective is a very positive sign," said Shaun O'Brien, an assistant policy director for health and retirement with the AFL-CIO.