U.S. Capitol

With the Senate's vote, Congress has tried to kill a new conflict-of-interest rule protecting retirement savers. President Barack Obama will veto the measure, though.

(Evan Vucci, Associated Press)

WASHINGTON -- The U.S. Senate voted late Tuesday to kill a new federal rule that would require financial advisers to give conflict-free advice to savers seeking help with retirement accounts such as IRA's and 401(k) plans.

President Barack Obama will almost certainly follow through on a promise to veto the Senate decision, which followed a similar House of Representatives vote in late April.

"It is essential that these critical protections go into effect," the White House said in a veto notice.

The so-called fiduciary rule, announced April 6 by the Department of Labor, was designed to assure that professionals offering investment advice for people with retirement accounts had a duty to put the interests of clients first. But the rule's issuance capped a long debate in which Republicans and some financial firms said an industry fearful of client lawsuits might react by leaving the business. That could leave small savers with fewer options for good, free advice, Republicans said.

The rule, to take effect next April, did not outlaw controversial retirement vehicles such as variable-rate annuities, nor did it require that a company selling its own brand of mutual funds or other financial products branch out to offer competitors' products. But it required disclosure that other options might be available.

And it made clear that if a financial professional pushed one fund or product over another simply because his commission would be higher, he could be liable in a lawsuit for not putting the client's best interest ahead of his own.

Obama, Labor Secretary Thomas Perez and other Democrats said the rule was needed to help control for an imbalance of power: ordinary workers who don't know the ins and outs of finance found themselves reliant on advisers in an industry that has taken advantage of the client's ignorance from time to time. In many cases, a worker's retirement account represents the sum of his or her lifetime savings.

"The outdated regulations in place before this rulemaking did not ensure that financial advisers act in their clients' best interest when giving retirement investment advice," the White House said when issuing its veto notice in advance of the House and Senate votes. "Instead, some firms have incentivized advisers to steer clients into products that have higher fees and lower returns -- costing American families an estimated $17 billion a year."

But Republicans, who hold majorities in the House and Senate, said the rule would make it more likely for savers to sue, frightening some companies from offering the free advice they give now. As a result, some small savers would have to pay fees to get any advice, and many would shy from getting any advice whatsoever, Republicans said.

"Washington bureaucrats should not be dictating who you can hire and what investments you can make," said Sen. Deb Fischer, Republican of Nebraska.

Sen. Patty Murray, Democrat of Washington, countered on the Senate floor that "families have enough to be worried about" without fearing their advisers were making their retirement savings erode. Murray accused Republicans of putting the interests of financial advisers above the interests of working Americans.

The Senate measure -- a resolution of disapproval, requiring only a majority vote -- passed 56-41.

Ohio Sen. Rob Portman, a Republican, voted with the majority.

"The concerns raised by the White House are well-founded but this fiduciary rule goes too far and would undermine Americans' ability to get quality investment advice," Portman said in a statement after the vote.

He also said he has backed two other bills that would provide "strong protections to ensure that investment advice remains about helping families rather than collecting advisor fees." Democrats have said those measures are too weak.

Ohio Sen. Sherrod Brown, a Democrat, had pushed for the fiduciary rule and voted against the Republican measure to kill it.

Customers, Brown said on the floor earlier Tuesday, "must come first. "There is no alternative to that basic principle."