President Barack Obama will be making a public push to strengthen the regulation of financial advisers who provide advice about saving for retirement.
The two Senate Democrats with perhaps the most star power, Cory Booker of New Jersey and Elizabeth Warren of Massachusetts, will join the president for the rollout of the proposal at an event hosted by the AARP. Monday’s event also will feature Richard Cordray of the Consumer Financial Protection Bureau that Warren advocated for creating, along with Rep. John Delaney, D-Md.
Secretary of Labor Thomas E. Perez stressed in a conference call Sunday that he has been working on the issue since he first arrived at the department in 2013, with significant outreach already having taken place.
“The input that we have received to-date has been invaluable. Jeff and I have personally participated in many of the meetings with industry stakeholders, consumer advocates and others. Once we publish the proposal rule, we look forward to receiving additional comments, and we’ll hold a public hearing to discuss the proposal,” Perez said.
Perez declined to get into some of the specifics, citing “regulatory constraints” connected to the rule-making process. He did say, however, “We expect that the proposed rule will not ban commissions or any common compensation practices, and it will allow financial advisers to continue providing general education on retirement savings.”
Opponents warn that an increased regulatory burden could drive financial planners away from advising those at lower income levels, and the industry has vehemently opposed the proposed rule throughout the process. Securities Industry and Financial Markets Association President and CEO Kenneth E. Bentsen, Jr., for instance, already was expressing skepticism Sunday.
“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. The DOL re-proposal could ultimately raise the cost of saving and hurt all Americans trying to save for retirement, particularly middle-class workers,” Bentsen said in a statement.
National Economic Council Director Jeffrey Zients told reporters Sunday that AARP is among “a coalition of consumer and civil rights organizations who support the president’s call to update and strengthen the rules for retirement advice,” and called the new push “the next chapter” in the president’s “historic push for stronger consumer protections.” He highlighted past efforts by the Consumer Financial Protection Bureau, which Warren led after its creation, and which has been despised by many Republicans and the financial services industry.
The campaign is coming fairly early in the process, with the proposed rule being sent over to the Office of Management and Budget for review on Monday.
The public announcement and the transmittal to OMB come in conjunction with a new Council of Economic Advisers report that looks at peer-reviewed research about conflicts of interest and investment advice.
“The economic theory in this area is very clear. When you have a broker who has their compensation directly tied to the advice that they’re giving to a person, often with that person not even knowing that that’s the case, they’re going to systematically very often have a big incentive to steer people towards products that aren’t necessarily the best interests of their client, but instead offer them the greatest compensation, ” CEA Chairman Jason Furman told reporters.
“If you have a serious illness, you don’t want your doctor telling you what’s suitable for you, you want that doctor to tell you what’s best for you, and what will maximize the chances of saving your lives,” Perez said. “Similarly, as consumers make critical decisions on how best to invest their hard-earned savings, they deserve to know that their financial advisers are looking out for their best interests. The corrosive power of fine print, hidden fees and conflicted advice can eat away like a chronic illness at people’s hard-earned retirement savings.”
Furman highlighted in particular what happens when retirement plans offered through employers are transitioned into individual retirement accounts.
“Every year, there’s $300 billion of rollovers to IRAs,” Furman said. “If you roll over, you’re often rolling over from a 401(k) where you are advised under a fiduciary standard to, all of a sudden, getting conflicted advice, and potentially paying a significant amount, you know, as a result of that advice.”
Asked about the likely return of legislation by Rep. Ann Wagner, R-Mo., that’s previously passed the House to put the brakes on a Labor Department fiduciary rule update until after a Securities and Exchange Commission rule-making, Perez emphasized the Labor Department’s actions still have a long way to go.
“I am confident that people who have a shared interest in ensuring that people approaching retirement — and there are those in every district in the country — are able to take their hard-earned money and ensure that they can have a stable retirement,” Perez said. “This, again I would underscore, is an announcement that there will be a proposed rule that will have ample opportunity for an additional round of input from the public, including but not limited to members of Congress.”
“There are no final decisions that have been made … other than that we will have a proposal out there for public comment in the future,” he added.
The 114th: CQ Roll Call’s Guide to the New Congress
Get breaking news alerts and more from Roll Call in your inbox or on your iPhone.