Flanked by Democratic allies in Congress on Wednesday, Secretary of Labor Tom Perez unveiled the final version of the long-awaited fiduciary rule, which requires that, like doctors and lawyers, retirement account brokers must act in their clients' best interest.
"It really puts in place a fundamental principle of consumer protection into the American retirement marketplace, which is that consumers' best interests must now come before the advisor's financial interest," Secretary Perez declared in a speech at the liberal think tank Center for American Progress.
Advocates of the fiduciary rule argue that the retirement investment industry has become tainted by advisors who are incentivized by lucrative fees, commissions, and other monetary rewards to steer clients into inferior retirement investment packages with higher fees and lower returns.
Those types of high fees, one study found, could tack on an additional three years before a worker could retire. Conflicted advice from retirement advisors, advocates say, has cost retirement savers $17 billion per year, sometimes shaving tens of thousands of dollars from an individual's retirement savings.
The fiduciary rule attempts to address a new reality brought about by the large-scale shift from employer-provided pensions to products like IRAs and 401(k) accounts. It's a shift that has left many workers-disproportionately blacks, Latinos, and women-in the lurch with no end in sight.
"The regulatory structure that protects people's investments has not kept up with the changing landscape," Perez said. "In a world where people are more on their own in making financial decisions, financial advisors are not required to give advice that is not in their clients' best interest."
The new rule is a major plank in President Obama's consumer protection agenda, which was initially spurred by the creation of the Consumer Financial Protection Bureau. Obama called for the Department of Labor to issue the fiduciary rule just over a year ago, saying, "If your business model rests on taking advantage, bilking hardworking Americans out of their retirement money, then you shouldn't be in business."
But like many of Obama's initiatives that rely on his executive power, the rule has faced fierce opposition from Republicans in Congress and the financial services lobby.
Retirement advising companies complained that compliance with the rule would cost the financial services industry lots of money and ultimately limit access to advising services among workers with smaller retirement portfolios. But Secretary Perez said that the Labor Department implemented several changes to initial language that addressed industry concerns, including a last-minute change that stretches out the implementation period.
Critics have also implied that the rule addresses a problem that doesn't exist, pushing the administration to provide examples of those who have been hurt by bad retirement advice. Admittedly, the Department of Labor has struggled to do so, highlighting just a couple of individual anecdotes in a Politico story. Retirement experts say that it's hard for consumers to know when they're being cheated, especially since a lot of unscrupulous behavior in the industry isn't technically illegal.
Democrats are calling it a landmark achievement for the administration, and have pledged to fight tooth-and-nail against Republican pledges to overturn the rule in Congress.
"Sometimes government works for the people, and today is one of those days," Massachusetts Senator Elizabeth Warren proclaimed at the event.
For years, wealthy industry players financed an army of lobbyists and lawyers to try to stop this rule in its tracks, Warren said. "And honestly, some of them will continue to keep fighting. They have 17 billion reasons to keep fighting."
