A retirement advisor should be on your side — making recommendations that secure your financial future, rather than lining their pockets with kickbacks. Unfortunately, that’s not the current reality for all retirement plans in the United States. To address this problem, Obama has backed a plan to reduce the harmful impact of conflicts-of-interest by closing loopholes in the fiduciary standard—in other words, by requiring all retirement advisers to act in their customers’ best interests.
James Kwak has pointed out some failings in the President’s approach. He writes that it’s a “a step in the right direction,” but the best solution to help middle-class Americans save for retirement is to expand social security. I agree with Kwak’s policy prescription. But Obama’s advocacy on this issue marks a shift in his Administration’s rhetoric on financial reform. And that’s important, as Republicans in the House are ready to fight against even the modest protections being proposed.
In 2013, House Republicans passed a bill aimed at preventing the Department of Labor (DOL) from proposing a fiduciary rule. The bill blocked the DOL by indefinitely delaying its ability to act. Specifically, it prohibited the DOL from issuing a new fiduciary rule until 60 days after the Securities Exchange Commission (SEC) issued a final rule on the topic. But the SEC hasn’t even come up with a proposal, despite having the authority to do so since 2010.
On Wednesday, Rep. Ann Wagner (R-MO) re-introduced an amended version of her 2013 bill that’s even more obstructionist than the first. It adds a number of new hurdles the SEC must clear should they ever escape their stagnation, including a cost-benefit analysis, and a report to the House Finanical Services Committee. But one new restriction stands out above the rest: The SEC must report on how much money brokers and dealers would lose in commissions once the practice of kickbacks is ended. The bill makes no mention of the Council of Economic Advisers estimate that the bad advice these kickbacks incentivize cost Americans $17 billion a year.
Rep. Wagner has powerful allies in bank lobbying groups such as the Securities Industry and Financial Markets Association and the Financial Services Roundtable, who oppose the rule. And that’s why Obama’s move to endorse the rule is so striking. Just last year, President Obama was making calls alongside JPMorgan CEO Jamie Dimon to pass the CRomnibus, complete with a big bank giveaway tucked into it. Progressives in the House and Senate split with the President on the bill, and turned it into a very public fight.
But just two months later, the Administration’s optics couldn’t be more different. Instead of Senator Elizabeth Warren railing against a bill the President supports, she’s applauding his speech in front of the AARP in favor of the DOL’s soon-to-be-re-proposed fiduciary rule. And the President isn’t being shy with his rhetoric. In his speech Monday, he said “If your business model rests on taking advantage — bilking — hard-working Americans out of their retirement money, then you shouldn’t be in business.”
Obama isn’t the only one who’s tracking left on this issue.
Rep. Wagner’s 2013 bill passed with the support of 30 Democrats. One of those Democrats was Rep. John Delaney (D-MD), a former financial industry executive with a pro-industry voting record. But as Politico reports, Rep. Delaney’s changed his mind: he now supports the DOL’s plan, and was even present for President Obama’s speech. Delaney explained his reversal on the issue was due to “reams of additional data have been released showing how damaging this problem can be for middle-class investors.”
If even a Democrat with a track record like Delaney is turning around on this issue, it seems Democrats are starting to feel true pressure to use Wall Street as a wedge issue to differentiate themselves from Republicans. And that is far more than a good first step: it’s a victory for Main Street that’s worth celebrating.