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It’s Baaack ... Labor Department Sends Fiduciary Reproposal to OMB

Today President Obama, as expected, will throw his support behind the Department of Labor’s (DOL) controversial fiduciary rule reproposal — but the details of the proposal remain elusive.

Published reports indicate that the president will tout the reproposed rule at a speech today at the offices of AARP in Washington, where he will be joined by Sen. Elizabeth Warren (D-Mass.) and senior White House officials.

This is Obama’s second attempt at promulgating the regulations. A previous version of the rule was withdrawn in 2010 following withering bipartisan criticism. Most recently, SEC Commissioner Daniel M. Gallagher called the fiduciary rulemaking process a “runaway train;” and the U.S. Chamber of Commerce published a white paper taking to task the DOL’s reported reliance on a prohibited transaction regimen to address problems with the proposal.

The Hill reports that DOL Secretary Thomas Perez told reporters late Sunday that the new regulations will not bar all commissions. Perez said the proposal will be published in the coming months and will be open to a comment period. He also said that feedback from the 2010 failed attempt at reform had informed the process, according to Reuters. “We expect that the proposed rule will not ban commissions or any common compensation practices, and it will allow financial advisers to continue providing general education on retirement savings,” the report quotes Perez as saying.

A new White House fact sheet on the reproposed rule relies on the “Wall Street versus Main Street” verbiage that has dominated previous campaign language. In the fact sheet, White House officials write that "Wall Street firms benefit from backdoor payments and hidden fees if they talk responsible Americans into buying bad retirement investments — with high costs and low returns — instead of recommending quality investments … These conflicts of interest are costing middle class families and individuals billions of dollars every year.”

While the regulations are not yet available for review, the White House said that the new rule will seek to:

  • Require retirement advisors to put their clients’ best interests first by expanding the types of retirement investment advice subject to ERISA. The DOL proposal will “update the definition to better match the needs of today’s working and middle class families.”
  • Preserve the ability of working and middle class families to choose different types of advice. The White House said the 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 White House said that the proposal allow advisors to continue to provide general education on retirement saving across employer-sponsored plans and IRAs without triggering fiduciary duties. The White House also noted that the proposal will “seek to crack down on irresponsible behavior in today’s market for financial advice by better aligning the rules between employer-based retirement savings plans and IRAs.”  
The White House noted that, “when the Department of Labor issues a Notice of Proposed Rulemaking (NPRM) in the coming months, there will be opportunities to submit comments in writing and in a public hearing. The Administration welcomes and invites stakeholders from all perspectives to submit comments as the proposal moves forward. Only after reviewing all the comments will the Administration decide what to include in a final rule — and even once the Department of Labor ultimately issues a final rule, it will not go into effect immediately.”

The Office of Management and Budget’s (OMB) review normally takes 90 days, although it is possible that the OMB review could be conducted on an expedited basis.

More information from the DOL is available here.