A Department of Labor proposal that would impose a fiduciary standard on retirement advisers appears to have stalled yet again as the financial industry makes one more, eleventh-hour bid to try to change it before it is released publicly.
For a couple of weeks, participants in the hotly contested debate over the rule have been waiting for the DOL to send it to the Office of Management and Budget for analysis. On its regulatory agenda, DOL had indicated that it would act on the rule last month.
Financial industry trade groups met with White House aide Valerie Jarrett and National Economic Council director Jeffrey Zients on Jan. 23. The Securities Industry and Financial Markets Association, the Financial Services Institute and the Insured Retirement Institute, among others, attended.
“The purpose of the meeting was to convey our concerns,” said Lisa Bleier, SIFMA managing director and associate general counsel. “We provided good information to them and hope they're taking it into consideration. Until we see how [the proposal] comes out, we won't know how they responded.”
The groups want to shape the DOL rule before it is publicly released. They're concerned that its advice restrictions will severely limit compensation for brokers who sell individual retirement accounts, and argue that it will prevent brokers from working with middle-income investors.
“Once it gets re-proposed, there's only so much that the department can modify before the rule goes final,” said Alice Joe, managing director of the U.S. Chamber of Commerce Center for Capital Markets Competitiveness. “They can't revamp the entire rule without having to re-propose it.”
Once the proposal arrives, OMB will have up to 90 days to assess its regulatory impact, although it could take less or more time. If it gives the proposal its stamp of approval, DOL would then release the proposal for public comment.
In recent weeks, the White House has indicated that it is getting behind the rule, which the DOL argues is necessary to protect workers and retirees from conflicted advice as they build their own retirement nest eggs.
A leaked National Economic Council memo asserting that brokers are motivated to sell high-fee retirement investment products that undermine their clients' retirement savings, struck a nerve in the industry. In December, the administration persuaded lawmakers not to include a rider in an omnibus appropriations bill that would kill the rule.
Ever since the original proposed rule was withdrawn in 2011, the financial industry has tried to prevent a revised version from being floated, said Barbara Roper, director of investor protection at the Consumer Federation of America. With the new rule likely headed toward public release, the industry is trying to slow it down, she said.
“Now that it has dawned on them that they won't succeed [in nixing the rule], their new strategy is to drag out the process as long as possible,” Ms. Roper said. “Every day of delay plays into their hands, if their goal is to ensure that a rule is not finalized in this administration.”
With the Obama administration entering its final two years, the clock is ticking.
“OMB needs to conduct an appropriate, careful review,” Ms. Roper said. “If this rule is going to make it to final adoption, that process has to happen quickly and efficiently.”
It's not clear why the rule hasn't reached the OMB yet. One reason may be that the White House is trying to coordinate an announcement, as the proposal reaches that next step. Another could be that the concerns raised by the industry are causing the White House to pause to work out the final policy details.
In a Feb. 5 letter to Mr. Zients and Labor Secretary Thomas Perez, the chamber expressed concern that the DOL rule would have an “overly broad application” and rely on so-called prohibited transaction exemptions to specify what kind of advice compensation would be allowed.
“Under this approach, everything is prohibited unless DOL specifically allows it,” the letter states. “Almost by definition, this will create a rigid one-size-fits-all regulatory approach that will make it harder to serve current investors, particularly in smaller accounts.”
Prohibited transaction exemptions aren't likely to address all the ways that brokers can be compensated for advice to retirement plans, Ms. Joe said.
“There's going to be a situation where it just doesn't work,” Ms. Joe said. “It's going to be a huge challenge for the Department of Labor to get this right – and that's why the industry is so concerned with the way they're going about it. It would be better if they took a narrow, targeted approach rather than applying a change more broadly.”
Ms. Roper is frustrated that industry representatives are criticizing prohibited transaction exemptions in a proposal that hasn't yet been released for public comment.
“Could we wait until we see them to make that assessment?” Ms. Roper said.