In a recent speech, President Obama announced support for a Department of Labor initiative to impose a fiduciary duty on those who give advice about tax deferred retirement investments such as IRA accounts.  It is a modest proposal. Judging by the howls emanating from an industry fearing it could cut into profits, though, you might think he had suggested something huge and terrifying.

Fiduciaries have a high level of duty to their clients. The financial services industry has grown used to a much lower standard known as “suitability.”  Although they are oversimplifications, the former has come to be known as “putting the client’s interests first” while the latter merely forbids selling a client something altogether unsuitable. An advisor observing the “suitability standard” may put a client into anything deemed appropriate even if it is wildly expensive or offers financial incentives to the seller.

For years the Department of Labor has urged that those who advise on tax qualified retirement accounts should owe their clients that higher level of competence, care, know-how, and loyalty.  President Obama has now added his voice to those efforts.  Indeed, from where I sit, the idea of imposing the same high duty on those handling people’s retirement money as is expected of doctors, lawyers and other “true professionals”  cannot possibly be controversial.  All that is being proposed is that the money guys be held to the same higher standard that any professional must uphold to keep the public safe from exploitation.

In light of the sound and fury emanating from the industry, though, it appears to be deeply controversial. An NPR report  quoted Kenneth Bentsen Jr., president and chief executive of the Securities Industry and Financial Markets Association, as saying, “This re-proposal could make it harder to save for retirement by cutting access to affordable advice and limiting options for savers.”  The argument seems to be that this industry cannot afford to serve retirement savers unless it is free to take them to the cleaners.

A New York Post article  went further in trying to tie this proposal to the familiar straw men of governmental expansion and encroachment on freedom.  Such an argument would seem ridiculous on its face; imposing a standard of care is hardly governmental overreach. In three decades as a lawyer, it never occurred to me that professional duties precluding taking advantage of clients are a limitation on my freedom.  Quite the contrary, in licensing a profession or vocation the proper authorities have a responsibility to impose appropriate duties.  Proscribing conflicts-of-interest, hidden overcharges, or otherwise taking financial advantage is surely part of a proper regulatory function.

Finally, there seems to be an argument that few financial advisors overcharge and that the fees currently accessed (both transparent and hidden) are fair and appropriate.  This argument is best refuted by a little light research; talk to anyone familiar with this industry who does not have a financial stake in it. Financial services are, arguably, the most overpaid sector in the American economy.  Practioners make enormous amounts of money by selling products and creating little or no value for their clients. Show me someone arguing that this industry is but fairly compensated and I will show you someone who is connected to this particular gravy train.