Labor Dept. unveils disputed financial adviser rule

The Obama administration is moving to crack down on financial advisers with a set of regulations that the financial industry warns would make it more difficult for less affluent Americans to get retirement advice.

The Labor Department’s highly anticipated “fiduciary rule,” proposed Tuesday, would impose new disclosure requirements designed to help consumers understand that their financial advisers might receive commissions from selling them certain retirement plans.

President Obama said in a statement that the regulations were an important part of his “middle class economics” agenda.

“Current loopholes allow Wall Street brokers and other financial advisers to benefit from backdoor payments and hidden fees if they talk responsible Americans into buying bad retirement investments,” Obama said.

But the draft regulations drew swift rebuke from congressional Republicans and business groups, who accused the administration of rushing the rules,

Rep. Ann Wagner (R-Mo.) assailed the proposal saying it’d upend the industry’s payment model so radically that it would cost out lower-income Americans from being able to afford financial advice.

“It would recklessly expand the definition of a fiduciary… and fails to take into account the vast regulatory structure already in place,” said Wagner, who derided the plan as an “ill-advised, top-down assault on local financial advisers and broker dealers.”

Wagner has proposed legislation that that would require the Security and Exchange Commission (SEC) to go first in implementing fiduciary regulations. Both DOL and SEC have jurisdiction over various fiduciary regulations.

The rule itself still has several months before it becomes official, and Congress could further complicate Obama’s objective. The administration has now opened the rule up for a 75-day public comment period, followed by a public hearing and then another comment period, according to an administration distributed document.

Financial Services Institute President Dale Brown said that he was “disappointed” in how quickly the administration moved ahead on the fiduciary issue.

“We are disappointed that OMB only took 50 days to review this highly controversial rule that could negatively impact millions of investors,” Brown said. “On average, Department of Labor rules are reviewed by OMB for 117 days.”

Brown noted that more than 200 bipartisan members of Congress — mostly Republicans, along with several moderate Democrats — have raised concerns about the proposal.

David Hirschmann, who heads the Chamber of Commerce’s Center for Capital Markets Competitiveness, also criticized OMB’s time period.

“Rushing this rule through the OMB review process prevents a thorough analysis that takes into consideration all concerns that have been expressed,” Hirschmann said.

A previous version of the proposal was scrapped in 2010 after a challenge from business groups.

Kent Mason, an attorney working with business groups on the issue, said that “it appears [OMB] has done the same type of cursory review it did in 2010 when it wholly neglected to analyze the rule’s effect [on the industry].”

He called OMB’s review “historically brief,” saying that they were “appearing to rubber-stamp a sweeping regulatory change.”

On Capitol Hill, the reaction fell along partisan lines. Rep. Maxine Waters (D-Calif.), the top Democrat on the House Financial Services Committee, praised the proposal and pushed back against claims that the regulations would limit access to low-income Americans.

“I’m encouraged that this proposal addresses those concerns by refraining from prohibiting certain compensation practices – and by seeking to ensure that vulnerable populations have access to investment advice that is in their best interests,” Waters said in a statement.

Rep. Gwen Moore (D-Wis.), another Democrat on the House Financial Services Committee, took a much more cautious approach and did not offer support or opposition to the proposal

“While I am please to see the Obama administration’s efforts to modernize the fiduciary duty rule, I will reserve my judgement,” she said. “Until then, I will continue my mission of protecting low-income and vulnerable populations.”

Not all in the business community attacked the plan. Bill Harris, former PayPal CEO and now current CEO of Personal Capital, hailed the proposal.

“We challenge every advisory firm, including traditional brokerages, to follow our lead and support an expanded fiduciary standard,” he said.

Labor Secretary Thomas Perez said the new regulations were “a very simple concept.”

“If someone is paid to give you retirement investment advice, that person should be working in your best interest,” Perez said in a statement.

This story was updated at 6 p.m.