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Obama Administration Wants Savers To Keep More Of Their Retirement Money


White House economic advisers argue that Americans are losing $17 billion per year from their retirement accounts - $17 billion - because of excessive fees. Today, the Labor Department is rolling out a new regulation intended to fix that. The people who get paid that $17 billion do not like it. NPR's Chris Arnold reports.

CHRIS ARNOLD, BYLINE: Up until now, many financial advisers have basically acted like salesmen. So your adviser might look at two nearly identical mutual funds that you could invest in. One charges you five times more in fees, but that fund also offers the adviser a bigger sales commission. U.S. Labor Secretary Thomas Perez tells NPR, too often, what the adviser does...

THOMAS PEREZ: ...Is take advantage of the current law, which says you can steer someone to a product that gives you a bigger commission at the expense of the customer's return. That's wrong.

ARNOLD: So the goal of this new rule is no more conflicted advice. Financial advisers and brokers will be held to what's called a, quote, "fiduciary standard." That means...

PEREZ: ...The person giving you advice has a legal obligation, an enforceable obligation, to put your best interest first.

ARNOLD: Perez says many people are actually surprised by this. They think that that obligation already exists.

PEREZ: You look at marketing materials from companies that provide financial advice and they consistently say things like, we put our clients first. This final rule that we've just put out says that this is no longer a slogan. It's the law.

ARNOLD: Much of the financial industry fought hard to block this rule. Financial firms argue that the rule would make it not worth their time to work with people who had only saved a small amount of money. But some other advisory companies support the rule. Scott Puritz is managing director of the firm Rebalance IRA.

SCOTT PURITZ: I'm a card-carrying capitalist. And I believe that free market, if operating properly, can provide the best benefit for the lowest cost.

ARNOLD: That's why, he says, he thinks this new rule will help firms like his that are more competitive on price. He says his advisers don't have big offices all over the country; they talk to clients over the phone, plus no hidden fees or commissions.

PURITZ: The retirement investment world is really stuck in the last century with very expensive, highly commissioned sales force selling expensive products.

ARNOLD: Some prominent investors are hoping that the rule will change that too. David Swensen is chief investment officer for Yale University.

DAVID SWENSEN: In the world of finance, you're dealing with an incredibly rich and powerful set of companies who aren't interested in serving their clients. They're interested in making profits.

ARNOLD: Swensen says some financial advisers, of course, do right by their clients. But he says the Labor Department requiring all advisers and brokers to be fiduciaries when it comes to retirement accounts...

SWENSEN: ...Oh, I think it's a huge deal. If you do have a true fiduciary standard, it's going to make a radical difference.

ARNOLD: That if is important, though. Swensen and other experts worry that there may be loopholes. The rule gets phased in over the course of next year. Chris Arnold, NPR News. Transcript provided by NPR, Copyright NPR.

NPR correspondent Chris Arnold is based in Boston. His reports are heard regularly on NPR's award-winning newsmagazines Morning Edition, All Things Considered, and Weekend Edition. He joined NPR in 1996 and was based in San Francisco before moving to Boston in 2001.