White House Move To Protect Nest Eggs Sparks Hopes And Fears

Transcript

LINDA WERTHEIMER, HOST:

The Obama administration is working on new protections for Americans who are saving and investing for retirement. Now some in the industry are pushing back. They say new rules could backfire and actually hurt the very people the president says he wants to help. NPR's Chris Arnold reports.

CHRIS ARNOLD, BYLINE: If you're building a retirement nest egg, big fees are your enemy. They are the birds of prey circling above you, looking to feast on your egg. And the White House says too many financial advisers are making that happen. That's because they get hidden sales incentives to steer Americans into bad retirement investments with high fees and lower returns. Earlier this week, President Obama put it this way.

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PRESIDENT BARACK OBAMA: If your business model rests on taking advantage, bilking hard-working Americans out of their retirement money, then you shouldn't be in business.

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OBAMA: That's pretty straightforward.

ARNOLD: The Labor Department will craft the new rules. The goal is to require retirement advisers to put your best interests ahead of their financial gain. But some industry groups are sounding the alarm. The Financial Services Roundtable said in a statement, quote, "a sledgehammer is not needed where a regular hammer would fix the problem." Tim Pawlenty is the group's president, and he's ready with another metaphor.

TIM PAWLENTY: There's always a few bad apples. We would encourage focusing on identifying those bad apples and removing them as opposed to, you know, tipping over and smashing the whole apple cart. And so we're concerned that this rule might be overly broad in that regard.

ARNOLD: For all the sledgehammers and smashed apples though, Pawlenty acknowledges that he doesn't know if the proposed rules would do that because we haven't actually seen the details yet. But Pawlenty says if the rules create burdensome regulation, financial planners might decide that it's just not worth working with people of modest means.

PAWLENTY: We don't want to get to a point where the red tape and the bureaucracy and the cost freezes lower income people from being able to take advantage of financial planning advice.

ARNOLD: But actually, not all industry groups are so worried.

KEVIN KELLER: There's a lot of overheated rhetoric.

ARNOLD: Kevin Keller is the head of the Certified Financial Planner Board, a voluntary standards group that certifies tens of thousands of financial planners. And actually, Keller says, he supports what the White House is trying to do. The new rules would create what's called a fiduciary standard, a requirement to act in a client's best interest.

KELLER: The claims by some industry groups that the fiduciary standard will reduce the availability of financial advice for middle Americans, it's simply just not true.

ARNOLD: Still, everything depends on the actual language of the rules. Kent Smetters is an economist with the University of Pennsylvania's Wharton School. He served in the George W. Bush administration, and he too supports the move by the White House. But he's also frustrated by existing regulations. For example, stockbrokers are already held to a fiduciary standard. But he says the brokers have found loopholes. So he says they can still get commissions for steering people into bad investments with high fees.

KENT SMETTERS: Literally, this is legal. I could say to you, Chris, you know, I have your best interest in mind, comma, I think you should invest in this fund, X Y and Z. That first half of the sentence, I really had your best interest in mind. The second half of the sentence, I take off my fiduciary hat.

ARNOLD: And at that point, he says, the broker could sell you whatever he or she wants.

SMETTERS: And you don't know any better because after all, you're going in there for advice. You don't have a clue. It's just screwing over middle-class households.

ARNOLD: But whether the new rules will be strong enough to actually fix problems, or so overly burdensome that they create problems, or just weak and meaningless, we won't know until the proposed rules are made public and eventually finalized. Chris Arnold, NPR News. [POST-BROADCAST CORRECTION: In the audio of this story, as in a previous Web version, we say stockbrokers are already held to a fiduciary standard but that because of loopholes they can still get commissions for steering people into bad investments with high fees. In fact, some financial planners are held to a fiduciary standard, and by getting registered both as financial planners and as stockbrokers they can evade that fiduciary standard and get commissions for steering people into such investments.] Transcript provided by NPR, Copyright NPR.