SAN JUAN, Puerto Rico (Reuters) - The failure of U.S. lawmakers to back a Department of Labor plan to rein in conflicts of interest by securities brokers who offer retirement advice is a “national disgrace,” a former top U.S. securities regulator said on Monday.
Former Securities and Exchange Commission Chairman Arthur Levitt told a group of U.S. state securities regulators that supporters of the proposed rule need to do more to “push back” against a political system that is “really rotten.”
Levitt, the SEC’s longest-serving chairman, was speaking at a meeting of the North American Securities Administrators Association (NASAA), with members from U.S. states, Canada and Mexico.
The Department of Labor has been working for several years to overhaul regulations on how brokers advise clients on workplace retirement plans such as 401(k)s and individual retirement accounts.
The plan is designed to reduce potential conflicts of interest because advisers who offer rollover advice to retirees stand to benefit financially. Brokers would have to act as fiduciaries, or give advice that is in their clients’ best interests. The move could save investors billions of dollars, supporters said.
But many Republicans and some Democrats oppose the plan, asserting that it would drive up costs, curb commissions and ultimately hurt customers.
Critics, including the Securities Industry and Financial Markets Association, have also complained the Labor Department rule could conflict with a separate fiduciary-rule making effort under consideration at the SEC that would harmonize rules between broker-dealers and investment advisers.
In February, Missouri Republican Representative Ann Wagner, re-proposed legislation to delay the Labor Department’s efforts until the SEC completes its separate rulemaking.
On Wednesday, the U.S. House Financial Services Committee will debate the bill, which it expects will pass in a vote on Thursday, a committee spokesman said.
In 2013, a prior bill by Wagner generated some bipartisan support and passed in the House by a vote of 254-166.
In a statement on Monday, Representative Wagner called Levitt “a career partisan bureaucrat” and said there were “millions of Americans who would be adversely affected” by the Labor Department’s rule.
“My legislation stops this Washington-knows-best assault on low- and middle-income savers and their access to sound financial advice,” the statement said.
The SEC should have been taking the lead on fiduciary initiatives all along but political disagreements within the agency had stalled progress, Levitt said.
Now, “Congress is saying ‘give it to the SEC’ because they know the SEC is so politically divided that (the agency) can’t get to the issue until 2016,” Levitt said. That is when Republicans hope to control both Congress and the White House, said Levitt, whose present roles include being a senior adviser at the Carlyle Group LP.
An SEC spokeswoman declined to provide an immediate comment.
The Labor Department plan, in the works for five years, gained national prominence in February, when President Barack Obama announced his support for the proposed rules.
A broad coalition of groups, including those representing consumers, workers and investors, have lobbied vigorously for the Labor Department plan, said Barbara Roper, investor protection director of the Consumer Federation of America, in a telephone interview.
The problem is that the securities industry has vastly more financial resources to promote its views, Roper said.