White House, Elizabeth Warren team up to protect retirement savings from Wall Street byJoan McCarter

MON FEB 23, 2015 AT 07:58 AM PST

White House, Elizabeth Warren team up to protect retirement savings from Wall Street

byJoan McCarterFollow

 
 
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There's a loophole in the law on financial advisors that's costing consumers $17 billion a year, money that is going into the accounts of said financial advisors instead of the retirement accounts of the people they're supposed to be helping. President Obama is teaming up with Sen. Elizabeth Warren (D-MA) to close that loophole.

The two are speaking at the Washington offices of the AARP Monday, announcing a new Department of Labor rule to make financial advisors to receive fees for their investment advice to individuals abide by the "fiduciary rule." That means that financial advisors would be required to act in their clients' best interests. Right now, they're covered under a much more lenient "suitability standard," that just says they have to give recommendations that they reasonably believe are suitable for that customer. What's the big deal? The big deal is that they can give that advice when they have a conflict of interest—they can get back-door payments from the providers of the investment products they recommend. So that great fund they're pushing you to invest in might not be the very best product for you, but they're essentially getting a commission when they steer you into it. The new regulations would put these investments under the fiduciary rule.

What will that mean in practice? When workers or retirees rollover their savings accounts, typically 401(k)s, into IRAs, brokers will generally not be able to recommend products that give them a kickback but diminish the clients long-term yield. The new fiduciary standard should block what honest brokers call "over-managing:" unnecessary rollovers, churning (over-active buying and selling that generates brokers' fees at the expense of returns), and the pushing of expensive and risky products like variable annuities.

Not surprisingly, Wall Street, the U.S. Chamber of Commerce and lawmakers from both parties are gearing up to fight the rule. David Dayen points to a a letter the Securities Industry and Financial Markets Association, a large trade group, got 183 members of Congress to sign, "including 118 Democrats, attacking the Labor Department rule." You can expect a Republican Congress, with the help of some Democrats, to act swiftly to try to find a way to block or blunt these rules.

The Department of Labor has created a website where you can read more backgroundabout the proposed rule and how to protect retirement savings.

ORIGINALLY POSTED TO JOAN MCCARTER ON MON FEB 23, 2015 AT 07:58 AM PST.

ALSO REPUBLISHED BY DAILY KOS.

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