What Obama's New Rule Could Mean for Your Retirement Account

PHOTO: President Barack Obama speaks at AARP in Washington, Feb. 23, 2015.PlayJacquelyn Martin/AP Photo
WATCH Obama Makes Case for Retirement Accounts Protections

President Obama is pushing for tighter regulations on advisers who handle 401(k) and IRA retirement plans.

Alleging that middle-class Americans can get ripped off by their financial advisers, the president spoke at AARP's Washington, D.C., headquarters today to make the case for a new proposed rule.

"Because of bad advice, because of skewed incentives, because of a lack of protection, you could end up in a situation where you lose some of your hard-earned money simply because your adviser isn’t required to put your interest first,” Obama said. “The truth is, most people don’t even realize it’s happening."

The new rule would require that advisers who handle retirement funds like 401(k)s and IRAs act in their clients' best interest, adhering to a new "fiduciary" standard that doesn't currently exist.

The idea is that financial advisers get paid extra to recommend certain funds, incentivizing bad advice and costing investors in the long run, according to Obama.

The new rule won't go into effect immediately -- or at all, necessarily. It will be proposed by the Labor Department and will then be subject to public and congressional comment. The Labor Dept. says it will take criticisms into account before making anything final.

So, if a new regulation is adopted, what would will it mean for your retirement account?

Pamela Banks, senior policy counsel at the D.C.-based group Consumers Union, says the rule would help investors.

"These rules would help put consumers first by removing conflicts of interest among brokers and other financial retirement advisers, closing loopholes, and raising accountability for the industry," Banks said in a press release.

The effects are being debated by the White House and the financial industry.

The White House says it will mean savings for investors. In a lengthy fact sheet, the White House claimed "middle-class families who receive conflicted advice" on average see one percentage point lower returns on their retirement investments, adding up to $17 billion of losses nationwide each year. Over 35 years, a $10,000 retirement investment would grow to $38,000 instead of $27,500. For a worker rolling over a $100,000 401(k) into an IRA at age 45, that investment would grow to $216,000 instead of $179,000.

Those are the White House's projections, but industry tells another story.

The asset-manager trade group Securities Industry and Financial Markets Association points to a private study of a 2010 proposal for a "fiduciary" requirement--from which the Labor Dept. says it has deviated this time around--finding that IRA investors could have paid 75 percent to 195 percent more under that 2010 plan.

The group says retirement investors in the U.K. have experienced reduced access to investment guidance, and some with low-balance accounts have been declined as new clients, under a similar rule.

Apart from the arguments on both sides, here's one thing investors should keep in mind: the new rule is expected to affect IRAs more than 401(k)s. That's because 401(k) plans already include an element of "fiduciary" responsibility, whereas IRAs do not.

The new rule would mostly effect investors rolling over their retirement accounts "from a 401(k) where you were advised under a fiduciary standard" into an IRA, White House Council of Economic Advisers Chairman Jason Furman told ABC News on a conference call with reporters. "The scope of the problem is focused there."