Retirement brokers are calling foul today on a White House effort to establish new rules that would require them to follow a “fiduciary standard” to avoid conflicts of interest, a move brokers and financial advisers say would limit individual access to trusted retirement advice and could limit broker compensation.

The Department of Labor today forwarded its new fiduciary rule proposal to the Office of Management and Budget for review. President Barack Obama threw his support behind the proposal Monday, saying in a White House Fact Sheet it would “require retirement advisers to put their clients’ best interest before their own profits.”

The DOL proposal is part of a White House crackdown on “backdoor payments and hidden fees” that cost middle-class families and individuals billions of dollars every year, the fact sheet says.

The National Association of Plan Advisors called the White House’s move an “attack on advisers and so-called ‘hidden fees’ and ‘backdoor payments’ by moving forward with a regulation that has its own hidden backdoor effect — keeping many Americans from working with the trusted adviser of their choice, even in the critical decision regarding rollovers from their 401(k) and 403(b) plans.”   

Also see: Release of new fiduciary definition delayed

“People should be protected from unfair and deceptive practices,” says Brian Graff, NAPA’s executive director, “but all indications are that this rule will block Americans from working with the financial advisers and investment providers they trust simply because simply because they offer different financial products — like annuities and mutual funds — with different fees. This rule could even restrict who can help you with your 401(k) rollover.”

“The best way to address concerns about ‘hidden’ fees is through better transparency, not by blocking 401(k) participants from working with the adviser of their choice,” Graff explained. “If the administration moves forward with this proposed rule, American savers will be forced to pay out-of-pocket for their financial advice, or be limited to financial products with identical fees. Tens of millions of American savers who cannot afford to pay out-of-pocket will lose access to their financial adviser or be severely restricted in their choice of financial products. This is a wolf in sheep’s clothing. This so-called ‘conflict-of-interest’ rule is really the ‘no advice’ rule.”

Juli McNeely, president of the National Association of Insurance and Financial Advisors, cautions against stricter rules. “Any considerations to tighten rules on advisers who sell and service retirement plans should be taken with a measured approach,” she says. “Registered representatives with clients saving for retirement provide important services to people who may have nowhere else to turn for products and advice. These advisers are already among the most tightly regulated professionals in the financial services sector, so it is important that any new regulations address real problems in the marketplace and do not harm consumers, especially those in the middle market whom NAIFA members mostly serve.”

The proposed rule will not be made public for several months. The DOL’s submission of the fiduciary rule to OMB triggers a 90-day review period.

While the text of the rule itself is not available, the White House fact sheet says the DOL proposed rule will:

  • Require retirement advisers to put their client’s best interest first, by expanding the types of retirement investment advice subject to ERISA: The definition of retirement investment advice has not been meaningfully changed since 1975, despite the dramatic shift in our private retirement system away from defined benefit plans and into self-directed IRAs and 401(k)s. The Department’s proposal will update the definition to better match the needs of today’s working and middle class families. Whether you are an employer trying to design a quality plan for your workers, a worker starting to save, or a retiree trying to avoid spending down your nest egg too quickly, you deserve access to quality advice, without fear that financial bias is clouding your broker’s judgment.
  • Preserve the ability of working and middle class families to choose different types of advice: The Department’s proposal will continue to allow private firms to set their own compensation practices by proposing a new type of exemption from limits on payments creating conflicts of interest that is more principles-based. This exemption will provide businesses with the flexibility to adopt practices that work for them and adapt those practices to changes we may not anticipate, while ensuring that they put their client’s best interest first and disclose any conflicts that may prevent them from doing so. This fulfills the Department’s public commitment to ensure that all common forms of compensation, such as commissions and revenue sharing, are still permitted, whether paid by the client or the investment firm.
  • Preserve access to retirement education:  The Department’s proposal will allow advisers to continue to provide general education on retirement saving across employer-sponsored plans and IRAs without triggering fiduciary duties.

When the DOL issues a Notice of Proposed Rulemaking in the coming months, there will be opportunities to submit comments in writing and in a public hearing, the fact sheet says.
Only after reviewing all the comments will the Obama Administration decide what to include in a final rule — and even once the DOL ultimately issues a final rule, it will not go into effect immediately, the White House says.

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