President Barack Obama issued his administration’s 10th veto earlier this week, overruling a GOP-backed attempt to undo his controversial fiduciary rule, which requires that financial advisers only act in the best interests of their clients.
The House of Representatives voted to strike down the rule in April, with lawmakers voting largely along party lines in a 234-183 split. Obama’s veto overturns the House’s decision, which means that the bill must secure a 2/3rds majority in Congress in order to pass. Since the Republican Party does not have a 2/3rds majority in Congress, it is unlikely to pass when it gets sent back.
The President wrote the following in his veto:
“This rule is critical to protecting Americans’ hard-earned savings and preserving their retirement security.
The outdated regulations in place before this rulemaking did not ensure that financial advisers act in their clients’ best interests when giving retirement investment advice. Instead, some firms have incentivized advisers to steer clients into products that have higher fees and lower returns — costing America’s families an estimated $17 billion a year.”
The Fiduciary Rule will require all financial advisors in the United States to follow what the field already calls the “fiduciary standard,” meaning that advisors must put the interests of their clients above their own profits when advising them. Before the rule, financial professionals who were not registered with the Securities and Exchanges Commission were allowed to give their clients whatever they thought was suitable for them, even if it wasn’t the very best advice. Clients could therefore be recommended to buy higher priced investments that wouldn’t necessarily give them the greatest returns. The Fiduciary Rule will now legally bind all financial professionals to the fiduciary standard in regards to retirement advice.
Republican lawmakers opposed the rule due to its perceived threat of making professional retirement-based financial advice unaffordable to millions of middle and low income Americans. Minnesota Representative Paul Kline (R), had this to say about Obama’s veto:
Those who will be hurt the most are the very men and women who need help saving for retirement.
President Obama is apparently willing to accept these painful consequences, but Republicans are not.
Another Republican lawmaker, Representative Phil Roe from Tennessee, had this to say back in April when Congress rejected the rule:
I don’t think anyone believes [the fiduciary rule] is going to make it easier for people to retire in this country
Life expectancies are going up, so we should be doing everything we can to help people save for retirement.
Democrats, however, are also appealing heavily to their voters pocketbooks with their arguments in favor of the rule. They often reason that the rule will provide more transparency to the advisory process, guaranteeing that clients will get the best possible deal when it comes to their retirement savings.
Connecticut Representative Rosa DeLauro (D), defending the rule in April, stated that financial advisors often rob “hardworking families of their retirement savings” when they are not bound to proper fiduciary standards. She states, “when it comes to retirement, every penny counts.”
Featured image via Getty.