For the first time in his second term, President Obama is picking a fight with Wall Street.
With Sen. Elizabeth Warren (D-Mass.) by his side, Obama announced Monday at AARP’s Washington headquarters that he is moving ahead with new regulations on financial advisers that are vehemently opposed by the business community.
{mosads}Obama says the regulations, known as fiduciary standards, are needed to protect consumers against advisers who pocket commissions from big banks by selling faulty advice to unsuspecting investors.
“If your business model rests on bilking hard-working Americans out of their retirement money, then you shouldn’t be in business,” Obama said.
Warren went even further.
“It’s about to time to do something that we should’ve done long ago — to end the kickbacks, the free vacations and the fancy cars … to ensure that all of our retirement advisers — and not just some of them — are looking out for the people they serve,” Warren said.
Obama is seizing the populist mantle as the likely 2016 Democratic nominee, Hillary Clinton, is coming under intense pressure to take a stand against the captains of finance. Much of that pressure is being channeled into efforts to draft Warren, a critic of Wall Street, into the presidential race.
Business groups lined up against the plan on Monday, warning it would radically change the industry’s payment system and make it harder for low-income Americans to obtain financial advice.
The push for the new regulations on investment advisers also stirred angst among centrist Democrats.
“Americans are going to be shocked when the only advice they have available to them is Jim Cramer on CNBC,” griped one Democratic financial services industry insider who works with big businesses.
Another former Democratic Hill staffer who works with businesses said Obama’s new proposals would be like “saying if you like your broker, you can keep your broker.”
“In reality, this rule is either going to make advice more expensive or cut savers out of the system,” the former staffer said.
The proposed regulations are expected to broaden the definition of “fiduciary” to cover more investment advisers, creating new disclosure requirements and forcing more brokers to work for annual fees rather than commissions. Administration officials have stressed the proposal will not end commission-based brokerage services.
Maryland Rep. John Delaney, a business-friendly Democrat who previously worked in the financial sector, appeared at the AARP event with Obama and defended the push for tougher rules. He argued the standards would be good for businesses and encourage everyone to put clients first.
“Incentives really matter,” he said. “It’ll be good for them, but most importantly it’ll be good for Americans.”
Officials at the Department of Labor failed at a similar attempt to pass the fiduciary rules in 2010, in part because some centrist Democrats opposed the measures.
A backlash to the new proposal is already gathering force.
Tim Pawlenty, head of the Financial Services Roundtable, which represents some of the nation’s largest financial institutions, raised concerns about the administration’s “overly broad proposal.”
“A sledge hammer is not needed where a regular hammer would fix the problem without causing unintended damage,” Pawlenty said.
Behind the scenes, lobbyists and major trade groups on both sides of the debate have been battling over the fiduciary proposal for years.
Nearly 50 groups lobbied on the issue during the last three months of 2014, including the AFL-CIO, the U.S. Chamber of Commerce, the Financial Services Roundtable, AARP, the Financial Planning Association, American International Group, the Teachers Insurance and Annuity Association — College Retirement Equities Fund (TIAA-CREF) and the Institute of Certified Public Accountants.
With Republicans now controlling both chambers of Congress, it’s possible legislation could be passed to try and stop the fiduciary rules in their tracks.
House Republicans, with the help of 30 Democrats, passed a bill in 2013 that would have slowed the rule-making.
Rep. Ann Wagner (R-Mo.) said she plans to introduce similar legislation this week aimed at stalling the administration’s efforts.
Wagner said Obama and Labor officials are “doubling down on a misguided proposal that will negatively impact low- and middle-income Americans’ ability to save for their retirement.”
“This rule-making will only end up harming the very people that it aims to protect by limiting access for Americans who are seeking advice from their financial advisers on retirement decisions,” Wagner said.
Some Democrats have previously aired concerns with the proposal.
A group of 32 lawmakers — the vast majority from the Congressional Black Caucus — sent a letter in 2013 to the Labor Department airing concerns about the effort. The letter echoed industry concerns, warning that minority communities could lose access to qualified advisers.
On Monday, Rep. Maxine Waters (Calif.), the top Democrat on the House Financial Services Committee and one of the signers of the 2013 letter, hailed the president’s action, saying it “expands opportunity and financial security for all Americans.”
The Democratic financial services insider said the proposal “puts Democrats across the board into a terrible position.”
“[Labor Secretary Thomas] Perez and the Obama administration are doing this despite the very real concerns Congressional Democrats raised,” the insider said. “They’re jamming them on this.”
Megan Wilson contributed to this report.