President Barack Obama endorsed Monday the Department of Labor's redraft of its rule to amend the definition of fiduciary under the Employee Retirement Income Security Act.
"Today, I'm calling on the Department of Labor to update the rules that advisors" use for retirement advice, so that advisors "put the best interest of their clients above their own," Obama said in comments at AARP's Washington headquarters. "If you want to give financial advice, you have to put your clients' interest first."
However, Obama said that "just because we put forth a new rule doesn't mean that it will become law. Special interest groups will fight it with everything they've got." That said, "we can actually look at the evidence, [and see that] the industry's doomsday predictions have not taken place in other countries."
Said Obama: "We are going to keep pushing for this rule."
Obama said that those saving for retirement "should have the peace of mind knowing that the advice you're getting is sound, that you're not being taken advantage of." However, as it stands now, "there are no uniform rules of the road to require retirement advisors to act in the best interest of their clients, and that's hurting millions" of retirement savers.
While "there are a lot fine advisors" who are putting their clients' interest first, Obama said, there are also those advisors who are receiving "backdoor payments" and charging high fees.
Obama cited statistics released the same day in the White House's new report from his Council of Economic Advisers which show that conflicts likely lead, on average, to 1 percentage point lower annual returns on retirement savings as well as $17 billion of losses every year for working and middle-class families.
Secretary of Labor Thomas Perez stated at the AARP event that "when it comes to financial advice, conflicts of interests can lead to bad advice and hidden fees that too often keep us from getting investment advice that's in our best interest."
Said Perez: "This isn't right, and we have an obligation to fix it. Consumers deserve to know that their advisor is working for them. Common-sense rules can protect investors and consumers, prevent abuse, and ensure that brokers and advisors provide advice that is in consumers' best interests."
The proposed rule DOL has sent to the Office of Management and Budget is the product of "substantial outreach to a wide range" of stakeholders, Perez said. But that move is just one step towards modernizing a nearly 40-year-old regulation, the fiduciary rule."
The OMB must now review the rule — a process that could take three months or longer — and send it back to DOL to publish for public comment.
"The input we have received to date has been invaluable, but we're not even close to being done," Perez said. "We have a lot more listening to do."
Once DOL's Notice of Proposed Rulemaking is published in the coming months, Perez said that he looked "forward to hearing from as many stakeholders as I can."
Both supporting and opposing statements flooded in after Obama's endorsement. Sen. Orrin Hatch, R-Utah, chairman of the Senate Finance Committee, said in a statement that "it is concerning the administration is moving forward with this rule after little to no consultation with congressional tax leaders. Because IRAs are tax-preferred savings accounts and not employee benefit plans, any new fiduciary rules regarding IRAs should be drafted by the Treasury Department. After all, it is the Treasury's responsibility to enforce the tax code, not the Labor Department."
