Rule meant to make investment advisers more accountable is being delayed
The Labor Department is delaying a rule designed to make investment advisers more accountable for the advice they give to employers and individuals in retirement plans, an assistant secretary of labor, Phyllis Borzi, said yesterday.
“We honestly weren’t as clear as we could have been, and we’re trying to fix that,’’ Borzi said. “We’ve also been working closely with the White House, and they’ve approved our decision to move forward in this fashion.’’
Concerns from private companies such as Morgan Stanley that manage 401(k) plans or investments in IRAs and from legislators caused the department to rethink the rule. The extra time will enable it to strengthen and clarify this “important consumer protection,’’ she said.
The Labor Department wants to expand the scope of fiduciary responsibility to protect those saving for retirement from conflicts of interest, such as recommending investments with higher fees. The rule would require investment professionals who advise employers and workers in 401(k) plans or IRAs to act in the best interest of their clients.
“We believe the Labor Department has made the right decision,’’ said Kenneth Bentsen, executive vice president at the Securities Industry and Financial Markets Association. “We have raised significant concerns about the proposal and lack of cost-benefit analysis on a rule that would affect millions of IRA holders and plan participants.’’
The original proposal may have caused financial firms to offer fewer investment options in retirement accounts and shift to a fee-based model used by investment advisers, which will raise costs, Bentsen said in July at a hearing before the House Subcommittee on Health, Employment, Labor and Pensions. Sifma is a lobbying group for banks and brokerages.
Fidelity Investments, based in Boston, is the largest provider of 401(k)s.
US Representative Barney Frank of Massachusetts, who is the top Democrat on the House Financial Services Committee, said in a letter last week to Labor Secretary Hilda Solis that the agency should withdraw and repropose the rule after coordinating with the Securities and Exchange Commission and the Commodity Futures Trading Commission.
The SEC has been working on rules required by the Dodd-Frank Act that may overlap with the Labor Department’s proposal.
The revised rule will cover both 401(k) plans and IRAs, Borzi said.
“People can look for a reproposal of this regulation at some point early next year,’’ she said. “That’s my best guess.’’
Margaret Collins writes for Bloomberg News.