White House Sets Sights On New Rules For Retirement Advice


President Barack Obama speaks at AARP in Washington, Monday, Feb. 23, 2015. President Barack Obama says too few Americans approaching retirement have saved enough to have peace of mind during their later years. (AP Photo/Jacquelyn Martin)

February 23, 2015

The Obama administration is returning to a debate with Wall Street over the rules that govern retirement advisors, arguing that current guidelines allow for conflicts of interest that cost investors at least $17 billion each year.

At issue is the legal standard that brokers and registered investment advisors use when handling money for clients who have an individual retirement account (IRA) or a 401(k). Under current law, financial advisors must provide advice that is at least “suitable” for a client, meaning it technically meets the client’s needs or tolerance for risk, but legally doesn’t have to be in their best interest.

The problem — as FRONTLINE reported in the 2013 investigation, The Retirement Gamble — is that financial advisors can legally recommend investment options that earn them commissions while saddling clients with an array of hidden fees.

At an address to the AARP in Washington on Monday, President Barack Obama endorsed a Labor Department plan that would force advisors to put their clients’ interest ahead of their own.

“You should have the peace of mind that the advice you’re getting is sound, that your investments are being protected,” Obama said. “If your business model rests on bilking hard-working Americans out of their retirement money, then you shouldn’t be in business.”

The White House did not outline specific details about the proposal — the plan will first be sent to the Office of Management and Budget for review and then opened to lawmakers, investor groups and the securities industry for comment. It will likely be several months before the Labor Department issues its final rule on how it will impose the higher “fiduciary standard” for financial advisors.

One of the administration’s concerns is that the payment structure of banks’ asset management businesses too easily incentivizes brokers to steer retirees towards investments with high fees or upfront sales commissions. In a report released ahead of his address, the president’s Council of Economic Advisors pointed to the example of IRA rollovers, which it argued could rob a typical investor of as much as much as $12,000 in retirement savings.

Another potential target of the initiative are loopholes in existing law that, according to investor advocates, allow brokers to get around their fiduciary obligations. For example, under current law, a financial advisor does not have to operate under the fiduciary standard if he or she is only offering a client advice on a one-time basis.

The securities industry is already pushing back. In a statement on Monday, the Securities Industry and Financial Markets Association, or SIFMA, the industry’s main lobbying group, warned that changes to the law would “adversely affect retirement savers, particularly middle class workers.”

“The new regulation could limit investor choice, cause inconsistencies as different regulators would apply different standards to the same retirement accounts, prohibit access to investor guidance, and raise the costs of saving for retirement,” SIFMA said.

This is the second time in five years that the Obama administration has sought to tighten the rules around financial advisors. In 2010, as FRONTLINE reported in The Retirement Gamble, the Labor Department tried to overhaul the 40-year-old law that deals with retirement advice — a law that took effect before the creation of the 401(k). But it withdrew the proposal the following year after heavy pushback from the financial services industry.

Watch how that effort was defeated in the below scene from the film:

Jason M. Breslow

Jason M. Breslow, Former Digital Editor



In order to foster a civil and literate discussion that respects all participants, FRONTLINE has the following guidelines for commentary. By submitting comments here, you are consenting to these rules:

Readers' comments that include profanity, obscenity, personal attacks, harassment, or are defamatory, sexist, racist, violate a third party's right to privacy, or are otherwise inappropriate, will be removed. Entries that are unsigned or are "signed" by someone other than the actual author will be removed. We reserve the right to not post comments that are more than 400 words. We will take steps to block users who repeatedly violate our commenting rules, terms of use, or privacy policies. You are fully responsible for your comments.

blog comments powered by Disqus

More Stories

Elizabeth Williamson
January 18, 2022
THE PEGASUS PROJECT Live Blog: Major Stories from Partners
A curated and regularly updated list of news articles from our partners in “The Pegasus Project,” a collaborative investigation among 17 journalism outlets around the world.
January 12, 2022
We Will 'Hold the Line': A Year-End Message from FRONTLINE's Executive Producer
A year-end message from FRONTLINE's executive producer, Raney Aronson-Rath.
December 30, 2021
Utah Police Shootings Often Involve a Person in a Mental Health Crisis. Here is How Law Enforcement and Advocates Respond.
A new Salt Lake Tribune data analysis shows that at least 42% of police shootings in the past decade involve a person in crisis or who is suicidal.
December 29, 2021