President Barack Obama on Monday proposed new restrictions for investors and financial advisors who manage accounts retirement savings of millions of Americans, stressing that “outdated rules” and “bad advice” are driving many families to lose money.
“We must ensure that Americans who are acting responsibly and preparing for retirement receive a fair share of the benefits of these savings,” Obama said during a speech at the headquarters of the Association of Retired US.
All saving for retirement “should have the peace of mind that the advice they give to invest that money is sensible, that their investments are protected and that no one is trying to take advantage,” added the president.
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Under the new rules proposed by Obama, brokers and financial advisors managing these savings accounts would have to disclose if they receive any compensation or other payment for recommending certain investments.
The proposal with the new regulations should be analyzed and reviewed now by the Department of Labor and the budget office in the White House.
After public comment period that can last several months will open.
The Council of Economic Advisers of the White House today released a report that estimated that approximately 1.7 trillion of individual retirement accounts are invested in products that pay fees or commissions that pose a conflict of interest.
According to Obama, “there is no uniform rule” that oblige those financial advisers to act for what really matters and benefits to its customers, “and that is harming millions of working and middle class families.”
The President emphasized that, on average, conflicts of interest in advising savings plans retirement “result in annual losses of a percentage point for those affected.”
Thus, the “bad advice” is cut by up to a quarter of the retirement savings over a period of 35 years, according to Obama.
“Obsolete” regulations written 40 years ago, “holes” in the law and “the fine print” make today “more difficult for savers to know who they can trust,” said the president.
“Financial advisors absolutely deserve fair compensation for helping people save for retirement and manage their investments. But they should not be able to take advantage of their customers,” he said.
The ceremony at the headquarters of the AARP attended, among others, Secretary of Labor, Tom Perez, and Sen. Elizabeth Warren, one of the biggest critics of the operation of Wall Street, which it accuses of being responsible for the 2008 financial crisis.
The Massachusetts senator was behind the financial system reform enacted in 2010 by Obama, who was adviser before joining the Senate.
This law, known as the “Dodd-Frank” was designed as a result of the severe financial crisis that shook the country in 2008 and caused the worst economic recession in seven decades.
His most controversial part, the so-called “Volcker Rule”, entered into force in late 2013 to begin a new era of financial oversight by the federal government and limit risk-taking capacity of the major banks.
Moreover, in the framework of the “Dodd-Frank” law, the Obama administration also created in 2010 the Consumer Financial Protection Bureau (CFPB), a vehicle to prevent abusive practices in the financial sector institutions.