President Obama on Monday reiterated his administration’s intent to implement the Department of Labor’s proposed fiduciary rule in his remarks at the White House’s Conference on Aging.
“The goal here is to put an end to Wall Street brokers who benefit from back door payments or hidden fees at the expense of their clients,” said the president at the event, which is hosted once every 10 years by the White House.
“If they’re advising you on how you should save your money they should be looking out for you, not for somebody who’s selling a product that may not be best for you,” Obama added.
The comments from the president are his latest commitments of political capital to the DOL’s efforts. In February, the president threw the weight of the White House behind the rule at an event hosted by the AARP.
“There are some financial interests that are going to fight it [the DOL’s rule] with all they’ve got,” said the president at that event, adding that financial advisors “shouldn’t be able to take advantage of their clients.”
The redoubling of his commitment to implement the new rule, which would require extensive disclosure agreements of advisors that receive commissions on the products they recommend, comes after both chambers of Congress have passed appropriations riders that would defund the DOL’s ability to issue and oversee the new regulation.
But industry watchers have called those efforts largely ceremonial, as the president would ultimately have to sign a spending bill that contains such defunding provisions into law.
Opponents of the rule worry that will be unlikely, given the political capital the president has already invested in the issue.
Kim O’Brien, CEO of Americans for Annuity Protection, a lobby for insurance investment products that opposes the rule, said the chances of the proposal, or some close version of it, ultimately being implemented by the end of President Obama’s second term are strong.
“He’s made it clear that this will be seen through,” O’Brien said. “It’s hard to see the White House backing down after investing so much in the rule.”
Last month, Labor Secretary Thomas Perez acknowledged there is still work to do to “operationalize” the proposed rule, and pledged his willingness to work with stakeholders to issue a workable regulation in testimony to a House subcommittee.
Opponents of the proposal say the rule would force the brokerage industry to a fee-based compensation model on IRAs, because complying with the rule’s Prohibited Transaction Exemptions and Best Interest Contract Exemptions provisions would be too expensive, and ultimately subject broker-dealers to costly private action litigation.
Transitioning to a fee-based compensation model would ultimately deter broker-dealers from providing advice and services to lower and middle-market accounts, claim opponents of the rule, leaving lower-income Americans without access to advice.
Other opponents to the rule have questioned the reliability of the DOL’s cost estimates on the financial services industry.
Brad Campbell, a partner and ERISA-specialist at Drinker, Biddle and Reath and a former assistance Secretary of Labor, recently authored a paper suggesting another provision of the rule that requires advisors to 401(k) plans with fewer than 100 participants and $100 million in assets to act as fiduciaries would ultimately discourage small employers from offering savings plans.
“Main Street advisors will have to review how they do business, and likely will decrease services, increase costs, or both,” Campbell wrote.
“Small businesses may find it even harder to offer retirement plans than they do today,” he added.