A top economic adviser under President Obama is calling for stricter rules on Wall Street after finding some bad broker practices costing investors $8 billion to $17 billion a year.
Chairman of President Obama’s Council of Economic Advisers, Jason Furman, found research showing some broker practices, such as boosting commissions with excessive trading, is costing investors billions. The White House is considering tighter oversight of brokers who handle retirement accounts.
In a Jan. 13th memo, drafted by Furman to the White House, calls for a Labor Department regulation that would impose a fiduciary duty on brokers handling retirement accounts, requiring them to act in their clients’ best interest. Under current procedures, brokers are held to a ‘suitability’ standard, meaning they must sensibly believe their recommendation is right for a customer.
Over the past four years or so, Wall Street has been lobbying against the Labor rule. Firms such as, Morgan Stanley and Bank of America Corp. have been leading the charge. Arguing that costlier regulations would take away options for smaller investors, who would lose access to advice as well as investment choices.
The Labor Department’s official proposal could come as soon as this month. It is important to note that this draft rule will not ban sales commissions and will require brokers to guard against conflicts and avoid “certain self-dealing transactions”.
For more details about the Jan. 13th memo click here.