Saving for retirement: Obama proposal sets up Wall St. fight

Labor Secretary Tom Perez, left, and Sen. Elizabeth Warren, D-Mass., were on hand Monday as President Barack Obama called for tougher standards for financial advisers who handle retirement savings.

Putting the spotlight on retirement nest eggs, President Barack Obama on Monday called for tougher standards on brokers who handle such savings accounts, a change that could affect the investment advice received by many Americans and aggravate tensions between the White House and Wall Street.

The Labor Department submitted a proposal to the White House Monday that would require the brokers who sell stocks, bonds, annuities and other investments to disclose any fees or other payments they receive for recommending certain investment.

“If you are working hard, if you are putting away money, if you are sacrificing that new car or that vacation so you can build a nest egg for later, you should have the peace of mind of knowing that the advice you are getting is sound,” Obama said in a speech to the AARP, the retiree advocacy group. “These inducements incentivize the brokers to make recommendations that generate the best returns for them but not necessarily the best return for you.”

The proposed rule, which could be months away from actual implementation, has been the subject of intense behind-the-scenes lobbying, pitting major Wall Street firms and financial industry groups against a coalition of labor, consumer groups and retiree advocates such as the AARP.

Americans increasingly are seeking financial advice to help them navigate an array of options for retirement, college savings and more. Many people provide investment advice, but not all of them are required to disclose potential conflicts of interest.

Under current rules, brokers are required to recommend only “suitable” investments based on the client’s finances, age and how much risk is appropriate for him or her. The rules would make brokers handling retirement accounts obligated to put their clients’ interests first.

The proposal would bring a stricter regime for brokers handling retirement accounts, making them “fiduciaries.” Fiduciaries are legally obligated to put their clients’ interests first.

The management of trillions of dollars in retirement accounts like 401(k)s and Individual Retirement Accounts could be affected. About $4.5 trillion sat in 401(k) retirement accounts as of last Sept. 30, plus $2.2 trillion in other defined-contribution plans such as federal employees’ plans and $7.3 trillion in IRAs, according to the Investment Company Institute, an industry group.

A new report from the White House’s Council of Economic Advisers concludes that investors lose billions of dollars a year because of brokers’ conflicts of interest.