President Obama directed the Department of Labor to “crack down on Wall Street” to protect families from conflicted retirement advice, the White House said in a statement Monday.
The announcement was made in conjunction with the release of a new report by the President’s Council of Economic Advisors, “The Effects Of Conflicted Investment Advice On Retirement Savings.”
“The report released today by the Council of Economic Advisers shows how conflicts of interest, backdoor payments and hidden fees are hurting average Americans, exacerbating income inequality and widening the racial wealth gap,” said Congresswoman Maxine Waters (D-CA), ranking member of the Financial Services Committee, in a statement.
Americans lose an estimated $17 billion every year because of bad financial advice due to conflicts of interest, the White House said, noting that “outdated regulations, loopholes, and fine print” allow advisors to accept a back-door payment or hidden fees that cut into Americans’ retirement savings.
The President’s recommendations to fix the retirement advice market include kicking off a rulemaking process that would require all retirement advisors to abide by a fiduciary, or trust standard.
The Labor Department will publish a rule in the coming weeks that will require retirement advisers to “put the best interests of their client above their own financial interests,” said Secretary Tom Perez of the Department of Labor, in a statement.
Once the rule is published, the Labor Department will accept public comments and hold a public hearing to discuss the proposal, he said.
The Consumer Financial Protection Bureau (CFPB) released a statement Monday voicing the agency’s support for greater transparency in the retirement financial advice and services industry.
“Consumers may not even realize how much money is being skimmed off the top of their retirement savings by biased advice and mystery fees,” said Richard Cordray, director of the CFPB. “Sometimes bad advice can be even worse than no advice at all. The proposed rule that the Labor Department is putting forward today is aimed at addressing these issues and protecting American consumers.”
Written by Cassandra Dowell