The Obama Administration today published an outline of remarks that the president would deliver to the AARP, in which he argues financial advisers are subject to serious conflicts of interest that hurt millions of working and middle class families.

“The rules of the road do not ensure that financial advisers act in the best interest of their clients when they give retirement investment advice, and it’s hurting millions of working and middle class families,” the administration says. “A system where Wall Street firms benefit from backdoor payments and hidden fees if they talk responsible Americans into buying bad retirement investments—with high costs and low returns—instead of recommending quality investments isn’t fair.”

The administration says these conflicts of interest are costing middle class families and individuals billions of dollars every year. On average, they result in annual losses of about one percentage point for affected investors, the remarks suggest.

“To demonstrate how small differences can add up, a one percentage-point lower return could reduce your savings by more than a quarter over 35 years,” the administration notes. “In other words, instead of a $10,000 retirement investment growing to more than $38,000 over that period after adjusting for inflation, it would be just over $27,500.”

The remarks explain that many advisers do in fact work through different business models that put their customers’ best interest first. “They are hardworking men and women who got into this work to help families achieve their dreams and want a system that provides a level playing field for offering quality advice,” the remarks continue. “But outdated regulations, loopholes, and fine print make it hard for working and middle class families to know who they can trust.”

Reacting to President Obama’s planned speech to the AARP, and to his suggestion that delivery of a new version of the fiduciary rule proposal by the Department of Labor (DOL) to the Office of Management and Budget (OMB) would soon occur, industry groups strongly rejected his claims of widespread adviser impropriety. 

The National Association of Plan Advisors (NAPA) issued the following statement in response to the Obama Administration’s remarks: “Today the White House launched an attack on advisers and so-called ‘hidden fees’ and ‘backdoor payments’ by moving forward with a regulation that has its own hidden backdoor effect —keeping many Americans from working with the trusted adviser of their choice, even in the critical decision regarding rollovers from their 401(k) and 403(b) plans.”

Brian Graff, executive director of NAPA, says investors should be protected from unfair and deceptive practice, “but all indications are that this rule will block Americans from working with the financial advisers and investment providers they trust simply because they offer different financial products—like annuities and mutual funds—with different fees.”

“This rule could even restrict who can help you with your 401(k) rollover,” he adds.

Graff’s warning encapsulates the other side involved in the fiduciary redefinition fight. Like NAPA, other advisory industry advocacy groups point back to the failure to reach consensus on a previous version of the controversial regulation, which was withdrawn in 2010 following harsh bipartisan criticism of its potential impact on access to professional investment advice, particularly for lower- and middle-income workers. 

“The best way to address concerns about ‘hidden’ fees is through better transparency, not by blocking 401(k) participants from working with the adviser of their choice,” Graff says. “If the administration moves forward with this proposed rule, American savers will be forced to pay out-of-pocket for their financial advice, or be limited to financial products with identical fees. Tens of millions of American savers who cannot afford to pay out-of-pocket will lose access to their financial adviser or be severely restricted in their choice of financial products.”

For its part, the DOL says it is still getting ready to issue a notice of proposed rulemaking at some point in the months ahead, “beginning a process in which it will seek extensive public feedback on the best approach to modernize the rules on retirement advice and set new standards, while minimizing any potential disruption to good practices in the marketplace.” According to the DOL, the rule language must first be reviewed by the Office of Management and Budget, which can take up to 90 days but can be expedited.

Given the controversy, it remains unclear what the path forward will be for the new fiduciary rule. Some have speculated swift Congressional action could follow the proposal or adoption of the rule, which would require the DOL to merge its rulemaking effort with a similar but lesser-developed effort ongoing at the Securities and Exchange Commission. 

The administration’s remarks are here.