Department of Labor Secretary Thomas Perez tried to temper backlash by the financial industry about a pending rule to raise standards for retirement advice, saying Wednesday he is listening to all parties' concerns.
In an address before the U.S. Chamber of Commerce's Capital Markets Summit in Washington, he said his agency has responded to criticisms of the original proposal, which was withdrawn in 2011 after a firestorm of protest from the financial services sector.
The rule, which would require brokers handling 401(k) and individual retirement accounts to act in the best interest of their clients, is
under review at the Office of Management and Budget. The DOL is expected to release it for public comment later this spring.
Mr. Perez said the rule would not ban commissions, would contain a “robust economic analysis” justifying the need for the measure and would draw a clear line between investor education and investment advice.
“We have a much more informed proposed rule to put out,” Mr. Perez said.
The regulation will contain so-called prohibited transaction exemptions that would OK certain conflicts, which in addition to commissions might include revenue sharing.
“The prohibited transaction exemption scheme is really a key to making this rule work,” Mr. Perez said. “I will be able to cite you chapter and verse to address the concerns that folks raised.”
In a recent report, the Chamber
asserted that such exemptions are unwieldy and rarely cover all possible circumstances.
David Hirschmann, president and chief executive of the Chamber's Center for Capital Markets Competitiveness, voiced another industry concern, questioning Mr. Perez about whether the rule would raise broker regulatory and liability costs to the point they are driven out of the advice market for middle-income investors.
“We have a shared interest in making sure that all savers can get access to advice,” Mr. Perez responded. “I'm confident that the proposed rule that we have put in place can preserve that.”
The DOL asserts that the rule will protect retirees and workers from conflicted advice as they build their nest eggs.
Currently, investment advisers work under a best-interest standard. Brokers meet a less-stringent bar that requires their investment-product recommendations to be suitable for clients, even if they carry higher fees than other available options.
Mr. Perez said he has heard from many financial officials that their firm puts their customers first because it's good for business.
“Then this compliance will be readily attained,” Mr. Perez said he tells them.
