The problem is that brokers are paid through commissions, creating a fundamental conflict with clients. Commissions are earned on the value of securities and mutual-fund shares sold. (In the case of bonds, it's the markup over the purchase price.) This makes brokers primarily salespeople, with sales targets and lists of products to push.

A fiduciary standard would make brokers legally liable for putting client money into a mutual fund that pays the broker a commission but whose fees are higher and annual returns are lower than a fund that pays no commission. The technical term for this is revenue sharing. The impolite term is kickback. It happens all the time, and most customers are none the wiser.

And yet it's perfectly legal, as are other unsavory practices, such as aggressive buying and selling of securities within a retirement account, which rack up unnecessary transaction costs that erode returns. The technical term is discretionary authority over an account. The nontechnical term when it's abused: churning.

Brokers can legally encourage people to move from low-cost employer plans to higher-fee individual retirement accounts. They can also recommend a high-load mutual fund that pays a fee in exchange for a privileged status with the brokerage firm (technical term: shelf space) without revealing that a Vanguard fund, for example, has a lower fee and comparable market returns (nontechnical term: self-dealing).

A 2013 study of Securities and Exchange Commission filings found powerful evidence of what you would expect: Brokers often steer clients to the mutual funds that pay brokers the highest fees. Another study of participants in an Oregon employer's retirement plan found that when savers used a broker, they experienced significantly lower returns.

These and other research papers conclude that the highest demand for brokerage services comes from the least financially sophisticated investors. In other words, the people who most need help are getting conflicted advice.

The conservative cost of brokers' conflicts is $8 billion to $17 billion a year, according to Obama's Council of Economic Advisers. That's 5 percent to 10 percent of potential savings, or one to three years' worth of living costs.

Instead of a fiduciary obligation, brokers now must abide by a lower standard called "suitability." This means they must reasonably believe an investment fits their client's risk profile. Most brokers find it easy to meet the letter, if not the spirit, of the standard.

Other countries, such as the U.K., Australia and Belgium, deal with brokers' conflicts by banning or restricting commissions. But doing so in the U.S. would overturn a business model that has prevailed for more than 70 years, creating so much upheaval that it might do more harm than good to investors.   

The White House proposal reflects a middle ground by requiring brokers to guard against conflicts and avoid self- dealing transactions. The best way to do this is with a fiduciary duty.

Considering that half of Americans have no retirement savings and only one of every two workers has access to an employer-based retirement plan, it makes sense for public policy to do as much as possible to protect individual nest eggs.