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Feb. 23, 2015

New Rule Would Stop Financial Advisers From Misleading Clients

Statement of Lisa Gilbert, Director, Public Citizen’s Congress Watch Division

Note: Today, President Barack Obama urged the U.S. Department of Labor to proceed with a new rule that would curb conflicts of interest among Wall Street brokers who advise clients on retirement investments. The rule would require advisers to prioritize client interests over the broker’s own financial interests.

Public Citizen welcomes the White House’s support for a new fiduciary standard designed to protect responsible investors from Wall Street brokers who are putting their own bottom lines ahead of their clients’ welfare. This rulemaking will close the gaping hole in current regulations that allows investment advisers to make recommendations that are not in their clients’ best interests. Americans who are trying to save for their retirement should be able to count on sound financial advice from advisers they trust.

Most investors rely on recommendations from a broker, financial planner or adviser to help them navigate the highly complex and opaque process of investing. This leaves them extremely vulnerable to exploitation, especially in light of the conflicts of interest that pervade the securities industry.

Working-class and middle-class families lose $17 billion a year in hidden fees and sales commissions that do nothing but line the pockets of unscrupulous advisers, according to a report from the White House Council of Economic Advisers. Over time, the hidden fees and commissions combine with second-rate investments to leave aging workers with significantly less money for retirement than they might otherwise have. The proposed rule would close the loophole that allows Wall Street advisers to mislead and fleece their clients in this way by providing long-overdue protections to individuals seeking advice.

We have a way to go before the new rule becomes law. In the meantime, we expect that Wall Street’s lobbyists in Washington will do everything they can to stop it from being finalized, but Main Street shouldn’t lose out on savings just because Wall Street wants to continue misbehaving.

This rule perfectly illustrates why we need strong and effective regulatory standards that protect average Americans’ pocketbooks from powerful and corrupt interests. We’ve seen what happens when we let Wall Street play by its own rules. Commonsense regulations like this one will ensure that all Americans can have confidence in their retirement savings.

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