On Monday evening, Democratic presidential candidate Hillary Clinton took a new stance by backing the Obama administration’s proposed rule to force financial advisers to act in their clients’ best interests, a standard many brokers today don’t have to meet.
— Hillary Clinton (@HillaryClinton) October 27, 2015
In April, the Department of Labor announced a proposed rule change that would force all retirement advisers who get paid to provide investment advice, including brokers, registered investment advisers, insurance agents, and others, to adhere to a fiduciary standard, meaning they would have to give advice that is in the best interest of their clients. It would also bar them from accepting payments, such as fees for recommending particular products, that could create conflicts of interest unless they enter into an exemption contract.
There is currently no such requirement for brokers giving individuals advice on retirement savings. That means they can legally steer clients into investing in products that make them or their firms more money but might not benefit the clients themselves. Such conflicted advice has been estimated to collectively cost Americans about $17 billion a year that would have otherwise gone to their retirement savings, a large number considering a third has less than $1,000 stashed away.
The issue has also taken on increasing importance as more and more American workers are given 401(k) retirement plans at work rather than pensions. Investment advice given to pension managers is already subject to a fiduciary standard; advice about making 401(k) decisions, on the other hand, isn’t always.
The rule change would still allow brokers to earn commission and revenue sharing and have otherwise broad leeway in structuring payments.
But the proposal has met with a barrage of lobbying from the financial sector, which claims that the rules would put small brokers out of business and cut off financial advice from some people who need it most. Republicans have also attacked it by including measures in legislation that would block the Department of Labor from implementing the new rules. On Tuesday, President Obama issued a statement saying he would veto a bill introduced by Rep. Ann Wagner (R-MO) that would do just that should it reach his desk.