(Refiles to fix typo in lead paragraph)
By Sarah N. Lynch
WASHINGTON, March 12 A U.S. Department of Labor
official on Wednesday offered a sneak peek into a controversial
plan to tighten regulation of retirement financial advisers,
saying it will both minimize conflicts and still permit brokers
to earn a living.
"Whatever business model you want to use is perfectly fine
with us, as long as it is not a business model that is entirely
based on conflicts of interest," said Phyllis Borzi, the
assistant secretary of the Employee Benefits Security
Administration, in remarks at an event held by the Financial
"There are lots of different ways that people get
compensated that are called commissions, and we will ... propose
ways that you can still be compensated," she said. "That will be
part and parcel of the proposal."
Borzi's remarks on Wednesday came more than two years since
the Labor Department scrapped its first draft rule in September
2011 amid withering criticism from the financial services
The department has been working now for several years to
overhaul its rules governing how advisers provide advice to
clients in workplace retirement plans such as 401(k)s and
individual retirement accounts.
Borzi wants these advisers to be held to a higher
"fiduciary" standard, meaning they must put their clients'
interests ahead of their own.
The idea behind the plan is to reduce potential conflicts of
interest because advisers who offer rollover advice to retirees
stand to benefit financially.
The plan generated stiff opposition from the industry, which
said it would drive up costs, curb commissions and ultimately
Critics also complained the Labor Department's rule could
conflict with a separate fiduciary-rule making effort under
consideration at the Securities and Exchange Commission that
would harmonize rules between broker-dealers and investment
The measure has proven so controversial that last October,
members of the Republican-controlled U.S. House of
Representatives passed a rule that would delay the department's
rulemaking until the SEC acted first.
However, Borzi made it clear on Wednesday that her
department is well ahead of the SEC at this stage, and is hoping
to release a new draft as soon as August.
"August is our goal," said Borzi. "Maybe we will be ready
then. Maybe we won't." But the new plan will be "very different"
from last time, she added.
While the Department of Labor (DOL) has long been expected
to release a new version of the fiduciary rule, its unveiling
has been delayed and the industry has been clamoring for details
on how the new plan will differ from the first version.
On Wednesday, Borzi told the audience to expect a result
that is "significantly reworked."
Federal retirement plans generally prohibit certain types of
transactions, typically to prevent self-dealing and conflicts by
people who manage the plan, among others.
The DOL, however, can carve out exceptions to those rules.
Borzi said on Wednesday that the new proposal will broaden
exemptions for activities that would otherwise be considered
Those expansions will include new language related to
revenue sharing - a practice in which investment companies with
funds in a 401(k) may pay plan providers for services like
research. Those amounts do not always show up clearly as plan
The scope of the forthcoming proposal related to revenue
sharing, however, was unclear.
Fee issues, including revenue-sharing, has been a strong
area of concern for the DOL.
Some critics have said revenue sharing may give rise to
conflicts of interest, especially if the specific costs are not
Borzi said several other changes will also be made.
It will, for instance, strive to better differentiate
between what is considered investment education and investment
advice, and it will also provide a lot more economic analysis to
help justify the rule - something critics originally said was
In addition, Borzi said the new rule will also try to make
it clear that not every broker would be transformed into a
fiduciary, and that those who just want to sell products can do
so as long as they do not cross the line.
While some of these changes are designed to ease concerns,
Borzi also warned the industry that it may still not be
satisfied with all of the changes and should be prepared.
"We will not be surprised if what people say is we haven't
gone far enough," she said.
"Many people have come in during this public process and
simply said 'Wave a magic wand and say what we do today is OK
tomorrow.' Well, that's not the way things work."
UNCERTAIN FUTURE FOR SEC RULE
SEC Republican Commissioner Daniel Gallagher said at the
event on Wednesday it is still very unclear whether the SEC will
ultimately move on its own fiduciary rule.
The SEC has been collecting data to better understand
whether customers are confused by the different legal standards
that apply to brokers and advisers.
Under current law, brokers are only required to offer
products "suitable" to clients, while advisers are held to the
higher fiduciary standard.
So far, the SEC has not opted to propose regulatory changes.
Gallagher told the audience there still is a question as to
whether a majority of the five-member commission will agree to
press ahead with new rules to require brokers to act as
(Reporting by Sarah Lynch; editing by Doina Chiacu, Bill Trott
and Linda Stern)