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 White House's announcement is part of Obama's push to prioritize issues that resonate with the middle class, and injects political pressure to an already intense debate over the obligations that brokers should face.

 

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.

 

The proposal is opposed by many Republicans, financial firms and some Democrats who fear the plan will limit retirement products available to investors and severely curb brokers' compensation.

 

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.

 

Middle-Class Issues

 

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.

 

 

 

 

Both parties are trying to position themselves as champions of the middle class, a theme that is likely to dominate the 2016 presidential campaign. Seniors are an important voting bloc for both parties.

 

Massachusetts Senator Elizabeth Warren, a consumer advocate who some Democrats hope will challenge former Secretary of State Hillary Clinton for the party's presidential nomination, joined Obama where he called for a proposal at an event hosted by the Association of American Retired Persons (AARP) on Monday.

 

Different Standards

 

In its push back against the Department of Labor's efforts, Wall Street groups have also cited a lack of coordination with the Securities and Exchange Commission. The SEC and the Financial Industry Regulatory Authority oversee largely the same pool of brokers as the Department of Labor, but have different legal regimes.

 

The SEC for years has considered adopting its own uniform fiduciary rule for retail brokers and advisors, but remains sharply divided and has not even determined whether new rules are warranted.

 

Under SEC rules, advisors are held to a higher "fiduciary standard" while brokers are held to a lower "suitability" standard, meaning they must sell "suitable" products even if they are not the most cost-effective.

 

Ken Bentsen, president of the Securities Industry and Financial Markets Association, said Monday that the SEC is the appropriate entity to consider any new rules, and said the White House's research supporting reforms is woefully inadequate.

 

Bentsen said Obama's announcement "juts a lot of politics into what is a very serious matter."

 

 

 

 

 

Reaction from various advisory industry groups reflected their previous positions on this issue. Both the Financial Planning Association and the Certified Financial Planner Board of Standards issued statements that applauded the news and expressed their shared belief that all financial advisors who provide financial planning advice should abide by the fiduciary standard.

 

The Financial Services Institute, a trade group for independent advisors and broker-dealers which has maintained that imposing a fiduciary standard on all advisors could raise the cost of providing financial advice and price some smaller investors out of the market, responded with more reserve. 

 

“We are eager to study the re-proposed rule and respond constructively,” FSI president and CEO Dale Brown said in a statement. “With the revelations last week that not all SEC Commissioners have been formally engaged by DOL, combined with the 200 bi-partisan, bi-cameral members of Congress who have weighed in over the last four years, we expect this process will take as long as necessary to ensure that any final rule avoids serious unintended consequences for Main Street investors.”

 

 

 

--FA Staff contributed to this article