Obama struggles with Wall Street to woo Democrats

WASHINGTON: The Obama administration is battling Wall Street to win the support of dozens of Democrat lawmakers over rules that could rein in brokers who handle trillions of dollars in retirement accounts.
President Barack Obama on Monday called on the Department of Labor to write new rules for brokers that seek to reduce conflicts of interest and “hidden fees” the White House says cost Americans $17 billion from their retirement plans every year. He portrayed the reform as a central tenet of middle-class economics that would help Americans “retire with dignity.”
What Obama didn’t mention is that more than 100 current and former Democrats in the US House of Representative and Senate have raised concerns in the past about attempts to draft such rules, either through comment letters or by voting for legislation that would delay such a reform.
They’ve warned that overly strict rules could limit retirement products available to investors because fewer brokerages would be prepared to offer individual retirement accounts, or advise lower-income Americans on them.
Wall Street’s argument is that the new rules mean that more investors would pay fees based on a percentage of their assets, instead of commissions.
That would hurt profits on such products and as a result brokers would pull back from offering accounts and advice, financial industry groups say.
Although new rules would not need specific Congressional approval, there is a danger lawmakers could separately pass legislation to delay or kill the plan.
And if a large number of Democrats allied with Republicans, who tend to oppose such rules, then Obama may be unable to exercise his veto powers.
Some of the Democrats concerned have received campaign contributions from major financial services trade groups.
For example, the Financial Services Institute (FSI), an industry group representing independent brokerages, gave $91,500 to House Democrats in the 2014 election cycle, which covers 2013-2014, according to OpenSecrets.org.
At least 23 of the 27 Democrat recipients of FSI’s political action committee funds in 2014 warned about the risk of overly strict rules, according to a review of comment letters and voting records.
The administration had been reaching out to some of the Democrats who had opposed similar moves in the past during the run-up to Obama’s announcement, according to several people familiar with the matter.
For example, Labor Department Secretary Tom Perez met with at least one House Democrat last week to discuss the topic, according to one financial services lobbyist with knowledge of the matter.
And in the coming weeks, Department of Labor officials are planning to meet groups of House Democrats to discuss the rules, one House aide familiar with the discussions told Reuters.
Industry groups representing brokerages and Wall Street wealth management operations are also planning to convince these Democrats that prior concerns are still valid, the financial services lobbyist said.
Already some trade groups, such as the Investment Company Institute, have been openly challenging the White House’s economic research to rationalize the need for rules, saying the data is riddled with errors.
The Department of Labor has been trying for about four years to adopt rules designed to rein in conflicts that may lead brokers to steer investors into more expensive retirement investments and charge higher commissions or fees.