“I am calling on the Department of Labor to update the rules and requirements that retirement advisers put the best interest of their clients above their own financial interests,” Obama said. “It is a very simple principle. You want to give financial advice? … You can’t have a conflict of interest.”
The move looks similar to the RDR rules introduced in the UK on 31 December 2012 which banned financial advisers from being able to collect commission payments when recommending pensions and investment products.
According to the White House press office, in the months to come the Department of Labor will issue a “notice of proposed rulemaking” to kick off a public feedback process on the proposed changes, which is designed to develop the best approach to modernising the rules on retirement advice and set new standards.
A report from the White House Council of Economic Advisers (CEA) published in conjunction with Obama’s announcement said there was a strong set of independent research showing hidden fees result in advisers steering clients into funds with higher fees and lower returns. They can also result in inappropriate rollovers out of lower-cost retirement plans into higher cost vehicles.
The CEA estimated conflicts of interest among financial advisers can result in annual returns on retirement savings likely to be on average one percentage point lower and result in around $17 billion of losses every year.
The White House move is part of President Obama’s push to improve “middle-class economics”, foreshadowed in his recent State of the Union address, which will also involve an overhaul of tax credits and higher taxes on the very wealthy.
