WASHINGTON -- President Barack Obama unveiled a significant retirement security proposal with Sen. Elizabeth Warren (D-Mass.) on Monday, announcing plans to bolster retirement accounts by curbing conflicts of interest on Wall Street.
The administration says Americans lose a combined $17 billion each year through hidden fees and conflicted investment advice. Investment specialists frequently steer investors into financial products that maximize benefits to the advisers or their companies, instead of their clients. To curb this, Obama plans to impose a new "fiduciary duty" on retirement account managers, requiring them to act in the best interests of investors.
"It's a very simple principle," Obama said Monday. "You want to give financial advice, you’ve got to put your client’s interests first."
"It's about time to do something we should have done long ago -- to end the kickbacks, the free vacations, the fancy cars and the other incentives to sell bad products to unsuspecting customers," Warren added.
Wall Street lobbyists, of course, have opposed such a move for years. But some of the most ardent foes of the pending rule have actually been Obama's fellow Democrats.
The administration first proposed its fiduciary duty rule in 2010, but set it aside after a lobbying blitz from the financial sector. Over the next few years, many Democrats lined up to urge the administration to rethink or delay the low-profile rule, pressure that assisted bank lobbyists' efforts to eliminate it altogether.
In June 2013, dozens of House Democrats, including some of the most progressive members of Congress, signed off on a letter penned by financial industry lobbyist Robert Lewis claiming that the rule would prevent financial firms from offering investment advice to low-income investors and people of color. The letter never laid out why its signatories believed banning financial experts from ripping off their own clients would end up hurting low-income people.
"It doesn't," said Barbara Roper, director of investor protection for the Consumer Federation of America. "It just doesn't. But it's a much more compelling argument for Wall Street to make than saying, 'We're making a boatload of money off of these people and we want to keep that going.'"
HuffPost reached out to several of the Democrats included on the letter, including Reps. Karen Bass (Calif.), Sanford Bishop (Ga.), Corrine Brown (Fla.), Yvette Clarke (N.Y.), William Lacy Clay (Mo.), Emanuel Cleaver (Mo.), James Clyburn (S.C.), Elijah Cummings (Md.), Danny Davis (Ill.), Marcia Fudge (Ohio), Tulsi Gabbard (Hawaii), Hakeem Jeffries (N.Y.), Hank Johnson (Ga.), Barbara Lee (Calif.), Gregory Meeks (N.Y.), Cedric Richmond (La.), David Scott (Ga.), Terri Sewell (Ala.), Maxine Waters (Calif.) and Frederica Wilson (Fla.). All declined to comment for this article.
Sources close to the debate told HuffPost that lawmakers had been concerned the Department of Labor rule would ban all commissions -- payments to investment professionals based on sales volumes for financial products. Lawmakers worried that eliminating all such fees would discourage brokers from serving low-income clients with small account balances. The United Kingdom bans commissions for investment advisers on conflict-of-interest grounds. The letter does not explicitly mention commissions, and consumer protection advocates are understandably concerned about brokers taking commissions to steer their clients into bad investments.
In August 2013, Senate Democrats weighed in, with 10 lawmakers urging the Department of Labor to delay its rule, suggesting that it might conflict with a proposal from the Securities and Exchange Commission.
A coalition of consumer groups, including CFA, Americans for Financial Reform and Public Citizen, quickly sent a letter of their own, calling the claims unfounded.
"The original proposal included no conflict with the federal securities laws," the letter reads. "Nor has any spokesperson for the Department made any statement that even suggests any such conflict."
Three of those senators were unseated in the November 2014 elections. Of those still in Congress, Democratic Sens. Tom Carper (Del.), Kirsten Gillibrand (N.Y.), Amy Klobuchar (Minn.) and Mark Warner (Va.) all declined to comment for this article.
"If the Administration’s draft rule isn’t harmonized with the SEC, it could reduce investment options for middle-class families and deny main street investors the opportunity to responsibly prepare for retirement," Sen. Jon Tester (D-Mont.) told HuffPost in a written statement.
"Working folks and their families should be able to get sound financial advice to help them achieve a secure retirement, and that’s what Senator McCaskill will be looking for in any proposed rule," said Sarah Feldman, a spokeswoman for Sen. Claire McCaskill (D-Mo.).
"Senator Cardin has spoken with Secretary Perez about the rule, but the senator will be waiting until he sees the full details before commenting," Sen. Ben Cardin (D-Md.) spokeswoman Sue Walitsky said.
Through it all, the Obama administration continued to delay the rule. The battle continued into December 2014, when top Democratic budget negotiators nearly accepted a Republican proposal to block the Obama administration from implementing it, until House Minority Leader Nancy Pelosi (D-Calif.) exiled the topic from talks over the so-called cromnibus bill.
The administration has not formally introduced a new rule for public comment, and once it does, it will be months before a final rule is implemented. The Obama team says the ultimate proposal will be more flexible than the 2010 plan, with broader exemptions for some investment planners. But Obama's decision to put political capital behind a new rule has encouraged many financial reform advocates.
"It makes sense, it's right and it's important," said Lisa Donner, executive director of Americans for Financial Reform.