Yesterday, the Obama administration called on the Department of Labor to draft rules that, in effect, would require brokers who provide retirement advice to abide by a fiduciary standard. In a speech at an event hosted by the AARP, President Obama said that existing ERISA rules were written 40 years ago and are in need of updating. While the President did not use the word “fiduciary” once in his speech, he did say that the proposed rules would require retirement advisers to put the best interests of clients above their own financial interests.

The President emphasized that many financial advisers seek to do the right thing for their clients, but he criticized financial advisors who receive hidden fees for steering customers into “bad retirement investments that have high fees and low returns,” or who persuade investors to roll their existing savings out of a low-fee plan into a high-cost plan. The President emphasized that, under any new rules, financial advisors would still be fairly compensated, but that the proposal would level the playing field for “outstanding advisors out there so that they can . . . put . . . their clients first.”

At the same event, CFPB Director Richard Cordray emphasized the importance of the retirement savings market, which he stated can be “complicated and confusing.”

The Department of Labor’s proposal was previewed on Sunday by Secretary of Labor Tom Perez, and various constituent groups promptly began to voice reasons for and against the initiative. One significant objection is that the rules might not be coordinated with existing regulations adopted by the SEC, which regulates both investment advisers and broker-dealers. Section 913 of the Dodd-Frank Act mandated that the SEC study the standard of care applicable to investment advisers and broker-dealers and granted the SEC the authority to impose a uniform standard of conduct. The SEC staff undertook such a study and has continued to gather and analyze data related to the efficacy of the current standards of care. In testimony before the Senate Banking Committee last fall, however, SEC Chairperson Mary Jo White noted that a uniform fiduciary standard was not mandated by the Dodd-Frank Act. The SEC has apparently not yet made a decision on whether, and how, to move forward with a uniform fiduciary standard rule for brokers and advisers.

Another objection is that the proposed rules could increase costs to investors. President Obama, on the other hand, cited a study that showed that conflicts of interest in providing retirement advice results in losses to affected investors of 1 percent each year.

The President acknowledged the significant opposition to the proposed rules. He signaled that his administration would be open to discussion about the rules, stating, “that’s what the comment period for the rule is all about.”