The Department of Labor Tuesday unveiled its much-anticipated rule proposal extending a fiduciary standard to thousands of brokers and advisers providing investment advice to clients on retirement accounts – but details on enforcement were still forthcoming.

The new standard would cover any adviser or broker receiving compensation for providing investment advice to a retirement plan sponsor, plan participant or IRA owner.

"We assume that these advisers put our best interests first, but that is not always the case. We should not have to ask if the adviser has our best interests at heart," said Labor Secretary Tomas Perez during a call to announce the proposal.

The proposed standard, which includes a "best interest contract exemption," does not cover compensation. A broker or adviser would not be held to a fiduciary standard if he or she was not providing investment advice, and instead was only carrying out a transaction on behalf of a client.

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The best interest contract exemption requires the advisers of firms which choose to rely on the exemption to commit to putting their clients' interests first and avoid misleading statements about fees and conflicts of interest. The contract also requires that clients be directed to a webpage disclosing compensations arrangements between the adviser and firm.

It was not entirely clear how the standard would be enforced. During a conference call with reporters, Perez took only five questions. In a statement, the DOL said that it reserved the right to exercise enforcement actions. Under the proposed rule, contracts can require that client disputes be handled in arbitration, but they must also permit class action lawsuits to be brought by a group of clients.

The Labor Department is able to impose the new standard under authorization from the 1974 Employee Retirement Income Security Act.

Jeff Zients, Director of the National Economic Council, said the rule needs to be updated because of changes in the U.S. economy. Fewer Americans have pensions, and more people are directly responsible for their own retirement security. Updating the rules will also benefit advisers who are fiduciaries.

"Many financial advisers do put their client's interest first," Zients said. "But the outdated rules create an unfair playing field, making it harder for good advisers to compete and making it hard for middle class and working class families to know who to trust."

Also see: What a new fiduciary standard means to plan sponsors

Advocates and opponents will have an opportunity to weigh in on the proposal during a 75-day comment period, which will follow a public hearing yet to be scheduled. After the close of the comment period, the Obama administration will decide what to incorporate into the fiduciary rule.

Critics have charged that the DOL's proposed rule would curtail consumer choice. The Financial Services Institute's CEO Dale Brown criticized the speed with which the government moved on this proposal.

"We are disappointed that [the Office of Management and Budget] only took 50 days to review this highly controversial rule that could negatively impact millions of investors. On average, Department of Labor rules are reviewed by OMB for 117 days," he said.

Critics should remember that the DOL had initially come out with a fiduciary standard proposal in 2012, then pulled it and spent the next five years seeking additional comment and revising rules, said Christine Lazaro, director of the Securities Arbitration Clinic at St. John's University School of Law.

"It's not like they've moved forward quickly or haphazardly, or without considering viewpoints that they needed to," Lazaro said. "They've moved forward carefully and I think thoughtfully in the process."

The DoL proposal will be filed in the Federal register and will again be open for public comment, she added. "So there will be another opportunity for anyone to voice their concerns. The fact that they are moving forward faster than the SEC on a fiduciary standard doesn't mean they haven't given full consideration of viewpoints that they should be considering."

Lazaro found little in the proposal for the industry to be alarmed about.

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"It does seem like the general business models will be permitted," Lazaro noted. "There really isn't any need to panic. The major concerns raised by the industry regarding commissions and revenue sharing, these would be permitted to continue, so long as the advice given is in the best interest of the investor."

"There are plenty of situations where advisers are already held to fiduciary duty, such as under state common law standards. It's not like strict standards haven't been tested and brokers haven't been held to these standards already. It's not a foreign concept when it comes to brokers."

Since earlier this year, the debate around what a fiduciary rule should like and what agency should craft it – even whether there should be a new standard – has been contentious. In February, President Obama endorsed the DOL's initiative at an event hosted by AARP, pointing to the lack of uniform rules governing the retirement advice financial advisers give clients.

"There are a lot of very fine financial advisers out there, but there [are] also financial advisers who receive back-door payments or hidden fees for steering people into bad retirement investments that have high fees and low returns," he said. "So what happens is these payments, these inducements, incentivize the broker to make recommendations that generate the best returns for them, but not necessarily the best returns for you." 

Also seeBrokers condemn Obama ‘attack’ on retirement advisers

In the days and weeks that followed, the conversation leapfrogged from the Beltway to boardrooms and onto the streets of New York. Raymond James CEO Paul Reilly issued a call for advisers to get engaged in the process and fight back against the DOL's proposal. PIABA, an investor advocate group, issued a study saying that brokerages' advertisements mislead investors into thinking their brokers are fiduciaries when they are not.

The group urged regulators to act swiftly. Even a New York City politician, Comptroller Scott Stringer, jumped into the fray, proposing a new law requiring brokers to tell clients that they are not fiduciaries and do not have to act in the best interest of their clients.

Most recently, industry leaders at SIFMA's Private Client Conference in Chicago last week took aim at what they say is overbearing regulators. Ken Bentsen, CEO and president of SIFMA, told attendees that his organization was working closely with regulators to address issues facing the industry.

"That is not to say that the process could not be better," Bentsen said. "It is even more imperative that regulators improve collaboration amongst themselves, particularly when it comes to crafting new rules with regard to market structure. I believe that it is important that the industry takes a leadership role."

Bill Johnstone, chair of SIFMA's board of directors, urged attendees to get engaged in the regulatory and political process pointing to a breach between the reality of what the industry provides clients and what some advocates have called for in terms of regulation.

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"For someone who started in the business in the 1970s, the difference between the training, technology and skills of today's financial adviser, compared to that of 40 years ago, is incredible," he said. "Today, when our business is criticized by those seeking a new standard of care, these qualities are often overlooked and an important perspective and balance is lost."

However, Merrill Lynch's John Thiel struck a different tone in his speech, saying that the industry has been and will be heard by policymakers.

"As an industry, we should work in a constructive and collaborative manner that's in the best interests of clients and allows us to deliver the kind of service they expect of us. Besides being the right thing to do, it will be good for business," Thiel said.

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