President Barack Obama has asked the Labor Department to establish rules for retirement advisers, holding them to a fiduciary responsibility.
That means they must put their clients' interests first, not just sell them investments that generate fees and commissions. And legendary Vanguard Group founder John Bogle thinks it's a good thing.
"I've been speaking about a broad standard of fiduciary duty for as long as I can remember,"
he told CNBC. "I hope that one day we get that standard of fiduciary duty that applies to everyone who puts their hands on anybody else's money. This is a good start."
Hopefully mutual fund and other money managers will ultimately be subject to a fiduciary standard too, Bogle said. Some unscrupulous financial advisers are seeking out investments that earn them the most fees rather than ones that perform best for their clients.
David Swensen, the star chief investment officer at Yale University, agrees with Bogle. Financial advisers "fight it tooth and nail because if they have to operate according to a fiduciary standard, their income is going to go down dramatically,"
he told NPR.
At present, financial planning advice comes from two different types of professionals. Registered investment advisors (RIAs) must meet a fiduciary standard.
Almost all the others — stockbrokers, broker-dealer representatives and people who sell financial products for banks or insurance companies — need simply recommend "suitable" investments for their clients,
Reuters reports.
"Most people don’t know the difference," Christopher Jones, chief investment officer of Financial Engines, a large RIA firm that provides fiduciary financial advice to workers in 401(k) plans, told the news service.
But Sen. Jon Tester, D-Mont., says he's concerned that the fiduciary standard proposal will shrink the investment options for non-wealthy Americans and butt heads with the Securities and Exchange Commission's effort to address the same issue.
"If this takes away options, and the rules are not harmonized [with SEC,] it will be a disaster,"
he told The Wall Street Journal. In light of Americans' massively inadequate savings, "we ought to be increasing options, not limiting them," Tester said.