Fight Looms Over New Adviser Rules

Fight Looms Over New Adviser Rules

Major financial industry trade groups are offering a restrained response to a new Labor Department proposal designed to curb conflicts of interest in the financial advisory business serving retirees, even as proponents of the measure gird for a major battle.

After years of preparation and behind-the-scenes lobbying, the department last week formally unveiled the language of the new rule that would require financial advisers to put clients’ interests ahead of their own in major retirement transactions.

Currently, many advisers are paid by commissions from mutual-fund and other financial companies, a business model the Obama administration says is rife with conflicts of interest that often result in advisers steering retirees to high-cost, poorly performing investments

Even before the rule was formally published Tuesday, financial groups had strenuously opposed a major change, arguing that requiring advisers to adopt a “fiduciary” standard in dealing with clients would upend current industry business models and curb access to advice, particularly for low- to moderate-income retirees.

Most business and financial industry groups last week said they wanted to study the proposal, which runs to 120 pages, along with separate segments on exceptions and other material that runs to several hundred pages more.

“This is a voluminous rule where the fine print matters,” said a statement from Kenneth E. Bentsen Jr., president and chief executive of the Washington-based Securities Industry and Financial Markets Association, which represents major Wall Street firms and other financial institutions.

“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. With so much at stake, we will thoroughly review the rule and its impact on investors.”

Similar statements were issued by other major players in the debate, including the Investment Company Institute, which represents the mutual fund business, and the Financial Services Roundtable, a major finance industry lobbying group.

But proponents nonetheless expect the industry to hotly contest the measure during a 75-day comment period, including a public hearing, before which the proposed rule could become official and go into effect.

“It’s not over by any means,” said Barbara Roper, director of investor protections at the Consumer Federation of America, who said the industry had worked for years to kill the proposal before it was even published. “They’ll be back.”

Indeed, the U.S. Chamber of Commerce said Tuesday it was “concerned” that the rule would limit investors’ access to advisers.

The chamber has already published a paper anticipating the Labor Department’s proposal to allow “exemptions” to the conflicts of interest rule.

The chamber said it was concerned that using exemptions to pare back a broad new rule would inevitably prove too “narrow and inflexible,” akin to “threading the needle with rope.”

A spokeswoman for the chamber, Erica Flint, said the group was still working to analyze the rule, and declined further comment.

A coalition of unions, financial reform groups and retiree organizations, including AARP, hailed the publication of the rule as a “major victory” and said they would work in the comment period to strengthen it.

Author: Dean Starkman Los Angeles Times

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