Fiduciary rule would require brokers and financial advisers to act in the ‘best interest’ of retirement savers
By Yuka Hayashi
Published on Jan 29. 2016 on The Wall Street Journal
WASHINGTON—The Obama administration has advanced to the final stages a controversial, closely watched rule imposing tougher requirements on financial firms offering retirement advice, as officials race against the clock to implement a policy President Barack Obama has identified as a personal priority.
The White House Office of Management and Budget confirmed Friday that it has received from the Labor Department a final version of the regulation for review, the last step before the rule can be announced publicly.
The rule, which would require retirement advisers to put their clients’ financial interests above their own, has survived multiple attempts by financial companies and some lawmakers to derail it.
The OMB review is a procedural step that is unlikely to change the rule substantially, but the timing is crucial for officials eager to have it take effect before President Obama leaves office early next year.
While a review of a major rule like this typically takes 90 days, industry officials and consumer advocates expect the budget office to finish the process in 60 days or less. That will allow the Labor Department to present the final rule to the public at the end of March or the beginning of April. Congress also is given 60 days to review the rule, which carries an eight-month implementation period.
The Labor Department hasn’t released the contents, of the final draft, so it is unclear whether any adjustments were made to reflect complaints the financial industry received after releasing an earlier version.
The fiduciary rule would for the first time require brokers and financial advisers to act as fiduciaries, or in the “best interest” of retirement savers, making it more difficult for them to sell high-cost investment products to millions of Americans with individual retirement accounts, or IRAs.
That “best interest” standard is more stringent than the current rule that requires only that such financial guidance be “appropriate.”
Financial firms have fought the regulation for more than five years, fearing it will cut into their commission revenue and raise the cost of compliance. They also say versions of the rule that have so far been made public were badly crafted and unworkable and would backfire by making it harder for many financial companies to offer middle-income savers advice.
Kenneth E. Bentsen, Jr., president and chief executive of the Securities Industry and Financial Markets Association, a trade group of major financial institutions, said in a statement Friday that the proposed rule could have “serious consequences for retirement savers including limiting choice and access to advice, while raising the cost of saving.” He urged the OMB to conduct a comprehensive cost benefit review of the final proposed rule.
Supporters of the rule say it is too early to declare a victory. “They still have a lot of opportunities to try to kill the rule: legal challenge, Congressional Review Act challenge and efforts to delay the implementation or kill it in a new administration,” said Barbara Roper, director of investor protection at the Consumer Federation of America.
The bar for Congress to kill the rule during its review period is high, given the threats of a veto from the White House.
The rule aims to help individual investors who are increasingly responsible for building their own retirement nest eggs through programs such as IRAs and 401(k)s that largely have replaced traditional pension funds. The fiduciary rule makes up the core of Mr. Obama’s effort to make it easier for workers to save for their retirement.
The administration unveiled plans Tueaday to push small businesses and states to make benefits more portable. It has pushed state governments to enroll their employees automatically in IRA accounts and recently rolled out a no-frills savings program dubbed “myRA.”