Today’s compensation schemes have nasty consequences, according to a report issued by the administration of President Barack Obama in February. It found that rotten advice from conflicted advisers costs savers 1 percent of their retirement savings, or $17 billion a year. The investment industry disputed that report.

Most brokers already give good advice. They build practices by pleasing customers and getting referrals. But some succumb to pressure to produce revenue for their firms, and big paychecks for themselves.

Retirement plans are fat targets. About $1.7 trillion of IRA assets are invested in products that generate conflicts of interest, says the Obama administration. Most of that money was transferred from 401(k) plans — often at the urging of brokers who claim they can manage it better — for a nice fee, of course.

Some tales are egregious. Professor Rob Weagley, who teaches future financial advisers at the University of Missouri, recalls trying to clean up the mess left by an adviser who sold a 92-year-old woman a $200,000 lifetime annuity — which pays high commissions to the salesman.

The annuity promised income until she died — which she did two years later — leaving her heirs poorer.

“There are a lot of scoundrels out there,” says Weagley, who chairs Missouri’s financial planning program.

The Labor Department would let financial firms keep commission systems that reward the adviser for selling more of one kind of product than another, or persuading investors to buy and sell frequently, which is not a good idea.

The government won’t ban the “revenue sharing” (read kickback) system in which mutual fund companies pay brokerage firms for putting lots of client money into their funds.

Brokerages can still talk up their house-brand mutual funds, even though other funds might have better records. They can keep selling clients bonds out of their firm’s own portfolios, even though the firms make money by selling bonds at high prices. (They would have to hunt up two comparable prices in the open market to justify their charge to clients.)

All those conflicts of interest are just dandy if the broker ignores them and acts only in the interest of the client, according to Labor Department reasoning. The compensation would have to be disclosed to the client, but that doesn’t mean it’ll be understood.

So, faced with a new edict from Washington, will brokers really resist temptation? For the shady brokers, the answer will depend on their fear of lawyers.

The rule change “will definitely be helpful,” says one of those lawyers. Richard Fosher, or Oakes and Fosher in Brentwood, represents investors in arbitration cases against brokers accused of cheating. “It will be crystal clear that the broker does have a fiduciary obligation to the client,” he said.

That makes it easier to win judgments against brokers and brokerages, and the new rule allows class action cases.

The rule would change a basic premise under which many brokers operate when advising people on retirement savings. Most now operate on a “suitability standard.”

They don’t have to pick the best investment for the customer, just one that’s suitable. For instance, an adviser can’t put a retiree’s life savings in a couple of high-risk stocks. But the adviser can put that client into mediocre mutual funds that reward the brokerage well, when other funds would be best for the client.

The new rule gives brokers a “fiduciary” duty to put the client’s interest first.

The rule applies only to advice for retirement plans, such as IRAs and 401(k)s. Brokers handling other accounts would continue to work under a suitability standard. The Securities and Exchange Commission is considering imposing a fiduciary standard on all brokers.

To further confuse things, a class of adviser called “registered investment advisers” already use a fiduciary standard.

The Labor Department proposed tougher rules in 2010 but retreated in the face of howls from the financial services industry.

The industry claimed that restrictions on commissions and other compensation schemes would make it unprofitable to advise customers who don’t have a lot of money. Well-off customers often pay the broker a percentage of their assets, rather than trade-by-trade commissions.

U.S. Rep. Ann Wagner, R-Ballwin, took up that argument last week. The new rule “potentially harms the very people that it claims to protect: low-and moderate-income Americans seeking advice for investing for their retirement,” she said. “This ill-advised, top-down assault on local financial advisers and broker-dealers is typical of President Obama and Sen. Elizabeth Warren,” she said.

Weagley notes that some brokerages charge a flat fee for a financial plan for people who aren’t well-off. They’re also rolling out cheap “robo-advisers,” computer programs that issue investment advise after customers plug in their information.

And the new rule, which will take effect after a 75-day comment period and hearing, still allows commissions.

Wall Street has been fairly silent since the new rule appeared on Monday. SIFMA, Wall Street’s main trade group, said it was looking at the proposal. “We want to ensure it protects investor choice and doesn’t unnecessarily reduce access to education or raise costs, particularly for low- and middle-income savers,” the organization said.”