New rules for financial advisers prohibit conflicts of interest

WASHINGTON — Financial advisers will be required to recommend investments that are in their clients' best interests — and not just the ones that yield the biggest commissions —under a long-awaited regulation being rolled out by the Obama administration Wednesday.

The Labor Department estimates that its so-called "fiduciary rule" could save American investors more than $17 billion as financial advisers can no longer steer customers toward products with higher fees and lower returns. Under current law, financial advisers are required only to recommend suitable investments.

"Many companies advertise that they put their clients interests ahead of their own," said Labor Secretary Tom Perez. "Today's rule ensures that putting customers first is no longer a marketing slogan. It's the law."

Investor alert: Rules for financial advisers changing

The rule will almost certainly be challenged in court, and Republicans in Congress have already vowed to overturn it by legislation.

House Speaker Paul Ryan, R-Wis., has called the rule "Obamacare for financial planning," saying it's a one-size-fits-all regulation that will limit consumer choices, especially for small savers who might not be able to otherwise afford financial advice.

But Perez said the long administrative process that developed the rule benefited from more than 3,000 comments from consumer advocates and industry groups. "We listened, we learned and we adjusted," he said.

For example, he said financial advisers will no longer be required to have clients sign disclosures as soon as they walk in the door. Instead, they'll be incorporated into the paperwork when a customer opens an account.

The rules were clarified to make clear that investment firms would not be discouraged from offering their own proprietary products, because advisers complained about "having to recommend a Chevy when you work at the Ford dealership," said Perez, previewing the regulations for reporters Tuesday.

And he said the rule would be phased in beginning next year. Until then, Perez said the Labor Department would try to educate consumers about what the new rules mean for them.

"If you're not aware of your rights, it's hard to exercise them," he said.