WASHINGTON (AP) — Republicans controlling the Senate passed legislation Tuesday to block new Obama administration rules that require financial professionals to put their client's best interest first when giving advice on retirement investments like individual retirement accounts.
The Senate passed the legislation to roll back the rules by a mostly party-line 56-41 vote. The regulations are aimed at blocking financial advisers from steering clients toward investments with higher commissions and fees that can eat away at retirement savings.
The new regulations, commonly known as the "fiduciary rule," require advisers who charge commissions to sign a promise that they will act in the client's best interests, earn "reasonable" compensation and disclose information about fees and conflicts of interest. It will take effect next April.
"It's pretty simple. It says if you're giving people advice on their retirement accounts, you should put the clients' best interests ahead of your own," said Sen. Patty Murray, D-Wash. "We're here today because Republicans want to block that new rule from helping families. That's just wrong."
Republicans say the rules would establish a new fee structure that might not be worth the broker's trouble, and consumers won't be able to get the advice they want. Instead, opponents say, retirees may have to seek higher-priced advice or fend for themselves. They point to the experience of Great Britain, which has imposed a similar rule.
"The result was that people with smaller savings accounts lost access to retirement advice," said Sen. Lamar Alexander, R-Tenn. "Many firms quit providing face-to-face advice for small accounts. A quarter of all small firms were forced to close shop all together."
"This exemplifies the paternalism that has typified this administration when dealing with the economy," said Sen. John Cornyn, R-Texas. "They don't actually believe that consumers know how to make good choices for themselves so they're going to force a ... one-size-fits-all standard on the financial services industry."
The rule is likely to accelerate a trend in the financial industry toward fee-based compensation and away from commissions.
The White House says President Barack Obama will veto the Senate measure, which advanced under a special process that did not allow Democrats to filibuster it.
The House passed the legislation last month along party lines.
At stake are about $4.5 trillion in 401(k) accounts and more than $7 trillion in IRAs. Problems often occur when people who are retiring roll over their 401(k)s into individual retirement accounts and are sold questionable products. Some brokers rip off investors by pushing them toward higher-cost investments like variable annuities or riskier options such as real estate investment trusts.
As of now, only investment advisers registered with the Securities and Exchange Commission or individual states follow the fiduciary standard. Brokers and most other financial professionals must follow a "suitability standard" that is significantly less strict and permits advisers to steer investors to higher-cost options.
The rule has undergone significant modifications since it was first proposed and withdrawn in 2010.
But Democrats say Labor Secretary Tom Perez has been accommodating to concerns raised by interest groups and has made numerous modifications in response. As a result, Democrats who opposed prior versions support the final rule, and they said the financial services industry can more easily adapt to it.