WASHINGTON — Senator Elizabeth Warren is joining President Obama’s bid to hold retail investment brokers to a higher standard of accountability for retirement planning advice.
The Department of Labor said Monday it will soon propose rules requiring brokers to put clients’ best interest before their own. Warren pledged support for the rule in remarks before a Monday afternoon speech by President Obama at AARP’s Washington headquarters.
“Today we stand up for millions of people who are trying to set aside money for a decent retirement,” said Warren, “and today we stand up for honest retirement advisers who are working hard to help them.”
Before becoming a senator, Warren was the driving force behind the creation of the Consumer Financial Protection Bureau in Washington.
At issue in the new rules is the definition of “investment advice.” The president wants anyone who advises investors on their retirement funds to have to meet the standard of a “fiduciary’’ — meaning they must put the customer’s needs above their own desire to earn fees and commissions.
“If you’re sacrificing that car or vacation to build a nest egg for later, you should have the peace of mind that the advice you’re getting’’ is sound, Obama said.
Comparing some advisers to “gunslingers of the Wild West,’’ he said duplicitous advising “offends our basic values of honesty and fair play — the values that say, in America honesty is rewarded and not exploited.”
This is a second round for the proposed rules, which were scrapped in 2010 in the face of heavy lobbying by Wall Street firms.
Brokers such as Merrill Lynch & Co. declined to comment until they see the rules spelled out. Boston’s Fidelity Investments, a giant in the brokerage and mutual fund business, said it would “welcome any regulatory proposal that allows us to provide the investment assistance that the average investor needs.”
But Fidelity, like others, had opposed the 2010 proposal, on the grounds that it might have to meet a fiduciary standard when its phone representatives assist customers or when clients make trades online.
“We know from experience that offering one-on-one guidance helps [investors] save and plan for a better retirement,’’ Fidelity spokesman Steve Austin said in a statement. “However, until we see a new proposal, we cannot comment on whether the rules have been constructed in a way that allows our customers to continue to receive” that investment assistance.
Critics say the current standard, known as suitability, isn’t strong enough to guarantee effective guidance for customers. An MIT study published in 2012 found that almost half of 284 retail brokers asked by fake clients recommended investing in mutual funds, which often have higher fees and risk than index funds, which tend to be more stable and less expensive.
Fellow Democrats, including Senator Edward J. Markey and Massachusetts Secretary of State William F. Galvin, praised the prospect of new rules.
Galvin, who oversees the state Securities Division, said, “Retirement assets merit special protection’’ and many investment houses have “taken money in little bits” over time from customers, eroding their savings.
Many in the financial industry indicated they remain wary of the new rules. At LPL Financial, a large Boston-based brokerage network, president Robert J. Moore said in a statement, “LPL Financial is concerned that the proposed DOL regulation could result in unintended consequences for both the consumer and adviser,’’ including fewer choices, less access to financial advice, and increased costs.
He said LPL would welcome a new fiduciary standard “so long as access to all models of financial advice is preserved.”
Bob Glovsky, a longtime financial adviser in Boston and proponent of a fiduciary standard, said he’d like to analyze the rules when they come out. But, he noted, “Anybody who gives financial advice to a consumer should be a fiduciary.”