Retiree advisor rule is facing battle

A proposed regulation would ban financial planners from creating conflicts of interest.

NEW YORK — A newly proposed rule to ban retirement planners from creating conf licts of interest with their customers might appear to put an end to the years-long policy fight over the issue.

Don’t bet the retirement on it. The battle is just beginning, proponents of the rule said.

The regulation requiring advisors to put clients’ interests first is designed to halt planners from, among other things, steering unknowing customers into high-cost, poorly performing investments that pay planners more but cost investors dearly.

The formal language published late Tuesday by the Labor Department triggered a 75-day comment period and eventual public hearing that both promise to turn the issue into one of the hotly contested regulatory fights since the Great Recession.

“This is going to be the biggest battle since DoddFrank, hands down,” said Dennis Kelleher, chief executive of financial reform advocacy group Better Markets Inc., referring to the sweeping 2010 financial reform law.

Kelleher said the industry can be expected to redouble its efforts to kill or mute the rule with $17 billion in annual revenue at stake. That’s the amount the Obama administration said is unfairly diverted to Wall Street and other financial intermediaries in fees because of conf licted advice given to customers.

The administration said broker-dealers, insurance agents and other financial planners for 401(k) and IRAs are often compensated through backdoor payments from mutual fund

companies or other institutions without the knowledge of their customers.

So far, major trade groups, which have led the fight against the proposed rule, are offering a restrained response. Several business and financial industry groups said they wanted to study the proposal, which runs 120 pages, along with separate segments on exceptions and other material that adds several hundred pages more.

“This is a voluminous rule, where the fine print matters,” said Kenneth E. Bentsen Jr., chief executive of the Securities Industry and Financial Markets Assn., a Washington trade group for 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,” Bentsen said. “With so much at stake, we will thoroughly review the rule and its impact on investors.”

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

The Labor Department’s formal release of the language comes after years of preparation and behindthe-scenes lobbying.

As written, the rule would require financial advisors to put clients’ interests ahead of their own in major retirement transactions and to make extensive disclosure when conflicts exist.

Currently, many advisors are paid by commissions from mutual-fund and other financial companies, a business model that the Obama administration said was rife with conf licts of interest that are often undisclosed.

Even before the rule was formally published Tuesday, financial groups had strenuously opposed a major change. They argued that requiring advisors to adopt a fiduciary standard in dealing with clients would upend current industry business models and curb access to advice, particularly for lowto moderate-income investors.

Despite the industry’s muted response to the published rule, proponents expect the industry to contest the measure strenuously during the comment period, which is required before the proposed rule can go into effect.

“It’s not over by any means,” said Barbara Roper, director of investor protections at the Consumer Federation of America. “They’ll be back.”

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

“Investors want and need advice, and if this rule makes it harder for them to seek guidance, then that is a problem,” said David Hirschmann of the organization’s Center for Capital Markets Competitiveness.

The chamber already has published a paper anticipating the Labor Department’s proposal to allow exemptions. The chamber said it was concerned that using exemptions to pare back a broad rule would inevitably prove too “narrow and inf lexible.”

A spokeswoman for the chamber, Erica Flint, said the group was still analyzing the rule. She declined to comment further.

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

Kelleher, of Better Markets, said publication of the rule marked “a day Wall Street hoped would never come.”

“Today’s proposed rule,” he said, “would mean tens of billions of retirement dollars stay in Americans’ pockets and not be moved into Wall Street’s profits. That is why Wall Street will not stop trying to kill the rule it hoped the American people would never see.”