Play Live Radio
Next Up:
Available On Air Stations

New White House Rule Protects Retirement Savers From Bad Investment Advice


When you ask a financial adviser for help in managing your retirement account, how can you be sure you're getting good advice? The Obama administration has wondered that too. It rolled out a new rule today that it says could save investors some $17 billion a year. NPR's Scott Horsley explains.

SCOTT HORSLEY, BYLINE: The intent of the new rule sounds simple. It requires stockbrokers and other retirement advisers to put their clients' interests first. Most people assume that's already the law, but Labor Secretary Tom Perez says not so.

TOM PEREZ: You might have four products, but one of those products can generate a much higher fee for the adviser. And so what he or she will do because he or she is human is steer someone to a product that gives you a bigger commission at the expense of the customer's return. That's wrong.

HORSLEY: The cost to the customer might be nearly invisible - say, 1 percent per year. But over time, Perez says, that could mean thousands of dollars in reduced retirement savings.

PEREZ: Nickels and dimes add up to billions and billions of dollars. And it's important to remember that the IRA and the 401(k) market is something like a $12 or $13 trillion market.

HORSLEY: White House economist put the aggregate cost of conflicted retirement advice at $17 billion a year. That's a lot of money, and not surprisingly, it's provoked a tug-of-war here in Washington. Parts of the financial industry lobbied hard to water down the rule or block it altogether.

BARBARA ROPER: The odds against our getting to this point were phenomenal.

HORSLEY: Barbara Roper of the Consumer Federation of America says her side typically loses this kind of under-the-radar regulatory battle. The financial industry is intensely focused on the outcome while the general public is not. Even the name - the Fiduciary Rule - makes most people's eyes glaze over.

ROPER: Nobody goes to the poll voting for their member of Congress based on their position on the Fiduciary Rule, but lots of people who fund campaigns decide what kind of campaign contributions they make based on what their position is on the Fiduciary Rule. Industry expects to win those fights.

HORSLEY: Congressional Republicans and some Democrats have joined the industry in trying to block the rule. GOP Congresswoman Ann Wagner of Missouri calls it a power grab by the administration.

ANN WAGNER: It's kind of like Obamacare for retirement savings. Once again, we've got a Washington-knows-best, top-down approach that doesn't put the faith in the people and our free market system.

HORSLEY: Another GOP lawmaker, Phil Roe of Tennessee, warns the rule could backfire if some advisers decide working with small retirement savers is just not worth the hassle.

PHIL ROE: Our main concern is small investors - the 2,000, 2,500, 5,000, $10,000 investors. Those folks will be left without a vice.

HORSLEY: Labor Secretary Perez says he's not worried. He's heard from plenty of financial advisers who are eager to serve small investors even under the requirements of the new rule. Perez says the new protections are especially important for younger workers who likely won't have access to traditional pensions and who have years of retirement saving still to come.

PEREZ: Every time they leave one job and go to the other, they might have a few thousand dollars in a 401(k). If you get advice right now, chances are that person doesn't have to put your best interest first. Under this rule, they do.

HORSLEY: The rule is set to be phased in next year. Scott Horsley, NPR News, the White House. Transcript provided by NPR, Copyright NPR.