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PERSONAL FINANCE
AARP

Obama calls for new rules on managing investments

David Jackson
USA TODAY
President Obama

WASHINGTON — President Obama called Monday for new rules requiring financial advisers to put their client's interests above their own, especially when it comes to retirement savings plans.

"There are a lot of very fine financial advisers out there, but there are also financial advisers who receive backdoor payments or hidden fees for steering people into bad retirement investments that have high fees and low returns," Obama said.

In a speech to supporters at AARP headquarters in Washington, Obama said that "conflicts of interest in retirement advice results in annual losses of 1 percentage point for affected persons ... It can cut your savings by more than a quarter over the course of 35 years."

Obama cited the example of an Illinois couple whose financial adviser put their money in an expensive annuity that made it hard to access cash when they needed it. He also discussed a study by Harvard and MIT in which volunteers posed as investors; out of 284 client visits, he said, advisers recommended funds with higher fees about half the time.

While Obama ordered the Labor Department to write new rules that might restrict certain investments, some financial organizations denounced his plans as an attack on their industry that would create more problems than it solves.

Brian Graff, executive director of the National Association of Plan Advisors, said people could actually lose money and help under the administration's ideas.

New rules could prevent people from working with advisers of their choice "because they offer different financial products — like annuities and mutual funds — with different fees," Graff said. "This rule could even restrict who can help you with your 401(k) rollover."

As a practical matter, the rule making process could take months.

And while the Labor Department and Obama could seek to impose new investment rules on their own, Republicans who control Congress could also take action to block any changes.

Cory Fritz, a spokesman for House Speaker John Boehner, R-Ohio, said the GOP will review Obama's plan, and "hope it reflects the concerns of Democrats, Republicans and advocacy groups who've warned against actions that would make it harder and more expensive for families to build a secure retirement."

In his speech at AARP, Obama said the problem is that "there are no uniform rules of the road that require retirement advisers to act in the best interests of their clients." He said Americans are losing as much as $17 billion a year in savings because of "bad advice that results from conflicts of interest."

Among the guests at Obama's speech: Sen. Elizabeth Warren, D-Mass., an outspoken critic of some Wall Street practices.

The crowd listens as President Obama speaks at AARP in Washington on Feb. 23, 2015.

The proposal "could make it harder to save for retirement by cutting access to affordable advice and limiting options for savers," said Kenneth E. Bentsen Jr., president and CEO of the Securities Industry and Financial Markets Association. The plan "could ultimately raise the cost of saving and hurt all Americans trying to save for retirement, particularly middle-class workers," he said

White House spokesman Josh Earnest said that current rules "do not insure that financial advisers act in the best interest of their clients when they give retirement investment advice."

Earnest said "there are thousands of financial advisers all across the country who are doing the right thing, and we need to take steps to make sure that all of them are."

The AARP and a group called the Save Our Retirement coalition applauded Obama's plans.

Jo Ann Jenkins, CEO of AARP, said "the people we represent have worked hard to save for retirement, and we believe that they deserve to have financial advisers who work just as hard to protect what they've earned."

Richard Trumka, president of the AFL-CIO, said retirement investment advice protections are long overdue.

"We have a way to go, however, before this rule is law, and Wall Street companies will make every attempt to keep it from becoming final," he said. "The AFL-CIO will do everything it can to fight back."

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