White House locks in new rules for financial advisers

White House locks in new rules for financial advisers
© Greg Nash

The Obama administration on Wednesday unveiled new rules for retirement investment advisers, turning aside pressure from industry groups to abandon the proposal.

The regulations, which were issued by the Labor Department, establish requirements that the White House says will save Americans billions of dollars by combating bad behavior on Wall Street. 


“A little over a year ago, the president called for action to crack down on conflicts of interest in retirement advice. … Today, we reached a crucial milestone,” said Jeff Zients, director of the National Economic Council, in a Tuesday call with reporters.

“It ensures that retirement savers get investment advice in their best interests so they can grow their nest egg.”

The regulatory initiative imposing a “fiduciary duty” standard on retirement investment advisers has been years in the making.

The financial industry has fought tooth and nail against the regulations, arguing they will impose a massive burden on financial firms and make it harder for less wealthy Americans to obtain expert financial advice.

Administration officials insist that they have taken industry feedback into account since last proposing the rule one year ago, and argued that any lingering criticism, including from high-ranking Republicans like Speaker Paul RyanPaul Davis RyanAs new Congress begins, federal-state connections are as important as ever Trump once asked Paul Ryan why he couldn’t be ‘loyal': book AEI names Robert Doar as new president MORE (R-Wis.), should not be taken seriously. 

“We’ve adequately addressed those and then some,” said Labor Secretary Thomas PerezThomas Edward PerezClinton’s top five vice presidential picks Government social programs: Triumph of hope over evidence Labor’s 'wasteful spending and mismanagement” at Workers’ Comp MORE. “Are you for consumers, putting their best interests first, or do you think that the only way financial advisers can provide advice is to put their financial interests first?”

The now-finalized rules mark one of the largest regulatory undertakings for the Labor Department under Obama, as the most recent comment period spanned five months, generated 3,000 comment letters and involved over 100 meetings. 

Under the new rules, most investment advisers for retirement plans will have to meet a “fiduciary” standard, requiring them to put the interest of their clients ahead of any others. And if they don’t, clients would have the ability to file lawsuits against them.

White House analysis found that conflicted advice can cost Americans up to $17 billion a year, and can drive down investment returns for middle and working-class Americans by a full percentage point.

Under the final rules, advisers will not be able to receive compensation that could result in conflicting advice; for example, they will be barred from steering clients toward an investment if that a company has paid them to promote.  


However, advisers will still be able to receive payments from investment providers like commissions, so long as they have in place procedures to eliminate conflicts of interests and disclose potential conflicts to clients.

The regulations also streamline earlier requirements. For example, they give advisers a flexible time frame to present a contract outlining any potential conflicts, after industry groups raised concerns that advisers would have to present such paperwork before even beginning a conversation with a potential client. 

Furthermore, the regulations scrap the idea of requiring firms to provide projections for possible investments, amid concerns such a system would be difficult and expensive to implement. And investment advisers do not have to meet as strict of data retention requirements as originally envisioned in the proposed rule. 

In the original proposal, the Labor Department suggested an eight-month window to fully comply with the new rules. That window has now expanded to at least one year, but full compliance is not required until the beginning of 2018.

While the rules may finally be done, the fight over them is only beginning. 

Groups in the financial industry could mount legal challenges to the regulatory effort, and some members of Congress are exploring legislative ways to change them.