Labor Secretary Tom Perez. (Photo: AP)

The Department of Labor issued for public comment Tuesday the long-anticipated controversial redraft of its rule to amend the definition of fiduciary under the Employee Retirement Income Security Act.

Labor Secretary Tom Perez said on a call with reporters that the proposed rule, which will be issued for a 75-day comment period, ensures that those “providing you with retirement investment advice are working in your best interest,” and provides for “streamlined, flexible ways to comply with that goal” by allowing advisors to enter into a “new and enforceable best interest contract before they can receive any payments that might bias their advice.”

Said Perez: The “best interest contract exemption is a straightforward agreement so you know you’ll get advice on investing your retirement savings that puts your interests first.”

The new best interest contract “creates a guardrail” requiring those giving advice to “put your clients’ best interest first. For many broker-dealers, they don’t have that guardrail” in place now, Perez said.

Said Perez to reporters: “The proposal does not end or bar commissions or other payments,” and it “does not apply to appraisals for valuations of stocks.”

Also, “it would not apply to brokers who just take direct orders from customers and would not limit access to financial education.” Call centers, he said, “continue to provide financial education.”

Jeffrey Zientz, director of the National Economic Council and assistant to President Barack Obama for economic policy, noted on the call that retirement advice Americans are getting “isn’t always in their best interest. That’s why the Labor Department is taking action.”

Zientz added that while the administration expects “plenty of good-faith input from all manner of commenters, for some special interests and their allies in Congress, the only good rule would be no rule at all. We want to make very clear that inaction is not an acceptable outcome of this process.”

Perez noted that DOL would schedule a public hearing “shortly after” the 75-day comment period, and that the public record will be reopened for comment after that hearing.

Only after reviewing all the comments will the administration decide what to include in a final rule, DOL said, and even once the DOL ultimately issues a final rule, it will not go into effect immediately.

Declining to comment on when a final rule may be issued, Perez stated that “We’re going to conduct a methodical review; I’m very confident that we will get some very helpful insights in this [comment] process.”

Unlike DOL’s 2010 fiduciary proposal, the current plan includes “a robust economic analysis,” Perez added.

Along with a new best interest contract exemption, the proposal also includes other new exemptions and updates some exemptions previously available for investment advice to plan sponsors and participants. For example, the proposal includes a new exemption for principal transactions, and asks for comment on a new “low-fee exemption” that would allow firms to accept conflicted payments when recommending the lowest-fee products in a given product class, with even fewer requirements than the best interest contract exemption.

The proposal carves out general investment education from fiduciary status.

Jo Ann Jenkins, CEO of AARP, said in a statement that “AARP has heard from thousands of Americans who want to make sure that investment advisors give advice in their clients’ best interest. Though many already give sound advice, we hope to see this conflict of interest loophole closed for all who give investment advice to their clients.”

AARP, which will comment on the plan, “hopes DOL moves quickly to finalize a rule to protect retirement investors,” she said.

Dale Brown, president and CEO of the Financial Services Institute, which has been a staunch opponent of the DOL redraft, said that “IRA owners are already protected by robust federal and state rules governing the retirement market,” and that FSI is “currently studying the rule and will comment about the specifics once we have given it a thorough review and fully understand the impact on our members and small and midsize investors.”

FSI, Brown continued, is “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.” (Emphasis his.) On average, he said, DOL rules are reviewed by OMB for 117 days.

Over 200 bipartisan members of Congress have told the DOL and the administration to carefully consider the impact of the proposal on investor access to retirement advice, products and services — and most expected the OMB would take as long as necessary to ensure that any final rule avoids serious unintended consequences for Main Street investors,” Brown said. “We have serious concerns that could have happened in only 50 days.”

The Financial Planning Coalition, consisting of the Certified Financial Planner Board of Standards, the Financial Planning Association and the National Association of Personal Financial Advisors, said that release of the DOL’s fiduciary rule for public comment “is an important step forward in updating a 40-year-old law to provide greater protections for Americans and their retirement nest eggs.”

DOL’s rulemaking, the Coalition stated, “should proceed without further delay or obstruction to full and open public evaluation and comment.”

Ken Bentsen, president and CEO of the Securities Industry and Financial Markets Association, noted that with such a “voluminous rule” the “fine print matters. 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.”

Dennis Kelleher, CEO of Better Markets, applauded DOL’s release of its fiduciary plan. “Today is a day Wall Street hoped would never come: the American people get to see and comment on a rule to end a loophole that has allowed Wall Street to put its self-interest above the best interests of Americans saving for retirement. Today’s proposed rule would end that conflict of interest.”

– Read the DOL Fact Sheet on the fiduciary proposal.

— Check out SEC Chief: Fiduciary, Third-Party Audit Rules to Advance This Year on ThinkAdvisor.