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.