U.S. Unveils Retirement-Savings Revamp, but With a Few Concessions to Industry

About $14 trillion in retirement savings could be affected by the rule


WASHINGTON—The Obama administration Wednesday rolled out a long-anticipated new rule aimed at transforming the way the financial industry delivers retirement-savings advice—but offered significant concessions to critics that could make it more palatable and less disruptive for brokers.

The fiduciary rule is aimed at curbing billions of dollars in fees paid annually by small savers who transfer money out of 401(k)s, which are required to operate in their best interests—and into individual retirement accounts, which aren’t currently bound by such protections. There, savers may be working with financial-product salespeople who earn more selling certain products and don’t have to put their clients’ interests before their own.

Administration officials intend it as a direct attack on what they consider “a business model [that] rests on bilking hard-working Americans out of their retirement money,” Jeff Zients, director of the White House National Economic Council, told reporters Tuesday.

About $14 trillion in retirement savings could be affected by the rule, which requires stockbrokers providing retirement advice to act as “fiduciaries” who will serve their clients’ “best interest.” That is stricter than the current standard, which only says they need to offer “suitable” recommendations, a standard that critics say has encouraged some advisers to charge excessive fees or favor investments that offer hidden commissions.

Still, reflecting intense lobbying from the financial industry that has fought the regulation since it was first proposed six years ago, the final version includes a number of modifications aimed at softening some of the most contentious provisions.

Among such changes: extending the implementation period of the rule beyond the end of the current administration; giving advisers more flexibility to keep touting their firm’s own mutual funds and other products; and curbing the paperwork and disclosure requirements.

But those fixes, rather than mollifying critics, could also give opposing companies and skeptical lawmakers more time to try to dilute the rule further or even try to kill it altogether under the new administration.

It is unclear yet how opponents will react, because the administration disclosed the new details of the rule to journalists Tuesday but embargoed the release until early Wednesday morning.

“Unless we see fundamental changes, this rule will remain unworkable, and we will consider every approach to address our concerns,” David Hirschmann, head of the U.S. Chamber of Commerce’s capital-markets division, said in a statement Tuesday. The chamber has said it was considering a lawsuit to block the regulation.

After the Labor Department released the preliminary version of the rule last April, it received more than 3,000 public comments. “With every meeting we took, every comment letter we read…we got smarter and we listened, we learned and we adjusted,” Labor Secretary Thomas Perez said on a conference call with reporters. “You’ll find that reflected in the final rule.”

The new rule will be the centerpiece of President Barack Obama’s efforts to help middle-class families build retirement savings in an era when few have guaranteed pension benefits. The administration says retirement advice offered by conflicted financial advisers costs American families $17 billion a year, and pushes down the annual returns on their retirement savings by one percentage point—figures that financial-industry leaders say are greatly inflated.

The broad agenda is shaping up to be a legacy issue for the president, with the implementation of steps such as the launch of a no-frills savings program called “MyRA” and beefing up state-based retirement plans.

“With the finalization of this rule, we are putting in place a fundamental principle of consumer protection into the American retirement landscape,” Mr. Perez said.

A core part of the rule says that if advisers want to continue receiving commissions and other types of compensation for selling specific products, they and their clients need to sign a “best interest contract” in which the adviser pledges to put the client’s interests first.

But the final version eases the limits around that provision a bit. Among the concessions is a new road map providing a way for firms to sell a limited lineup of their own products.

Mr. Perez said, for example, that an employee of MetLife Inc. wouldn’t be obligated to advise clients about offerings from a competitor, like New York Life, so long as the adviser has a reasonable basis to believe that MetLife’s own products are in the best interests of the clients.

To cut down on paperwork that industry officials said would be too burdensome, the new version of the rule only requires that firms sign one “best interest contract” with clients when they open an account. Large asset managers had complained that, under the original rule, individual advisers and customer- service representatives at call centers would have to sign a new contract each time they talked to the customer.

The final rule also makes it easier for firms to deal with existing clients. Companies can simply send a notice to existing clients telling them about the firm’s new obligations without requiring them to sign a new contract, said Mr. Perez.

The latest rule also clarifies that brokers and others can continue offering a wide range of guidance without having to clear the “fiduciary” bar for “advice.” It specifies that investor education isn’t considered advice, allowing companies to continue providing general education on retirement savings. Also excluded from the advice category are general circulation newsletters, media talk shows and commentaries as well as general marketing materials.

A key concession from the administration was giving brokers more time to adjust to what they say will trigger a dramatic change in their industry. The original proposal had called for an eight-month implementation period, a timeline that many in the financial industry had decried as being too short. The final rule adopts a phased-in approach that requires firms to be compliant on several broader provisions by April 2017 and fully compliant by Jan. 1, 2018.

While the government made concessions in some areas, it actually tightened rules for one key sector that could make regulations more burdensome on insurers. The earlier version of the policy allowed advisers and insurance agents to sell certain types of annuities without having to sign the best-interest contract. But the final version adds so-called fixed-indexed annuities to the pool of products that now would require a signed contract before sale.

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