Wall St lobby in battle over retirement advice clampdown

Wall Street lobbyists are taking on a fresh battle, seeking to shape a new rule that threatens to overturn the $7.4tn-in-assets retirement savings industry.

Under a proposal issued by the US Department of Labor last month, financial firms which are paid commissions or administrative fees for managing savings will be held to higher standards of conduct and expected to act solely in the interests of the client or face potential legal action.

For years, says the DoL, loopholes in the rules on retirement advice have allowed firms to push their own products, picking up "backdoor payments" and hidden fees often buried in fine print. It estimates that by cutting out such "conflicted" advice, families with individual retirement accounts (IRAs) could save more than $40bn over ten years.

"It's a very simple principle," said President Barack Obama in February, endorsing the department's early steps. "You want to give financial advice, you've got to put your client's interests first."

But banks and brokers are now stepping up the fight against the proposal, arguing that rather than giving consumers a better deal, the overhaul is likely to make investing more expensive.

Lisa Bleier, managing director of savings and retirement at Sifma, a trade group for hundreds of securities firms, banks and asset managers, says that smaller investors presently classed as broking clients, paying for whatever transactions they carry out, may have to move on to more expensive advisory platforms, paying a fixed percentage of assets.

The existing supervisory framework - with responsibility shared by the Securities and Exchange Commission and the Financial Industry Regulatory Authority - has been successful in stamping out abuses, says Alice Joe, a managing director at the US Chamber of Commerce.

"We hear the Labor Department and the White House saying advisers are charging too many fees and ripping people off, left and right. But the reality is that the existing regime is fairly robust; both the SEC and Finra have really ramped up efforts in terms of monitoring IRA activities."

Sifma and the Chamber of Commerce are yet to make formal responses to the proposal, which revolves around a redefinition of who qualifies as a "fiduciary" under the Employee Retirement Income Security Act of 1974.

Already, the resistance from the financial services industry is "huge," says John Keenan, a lobbying specialist at AFSCME, the largest trade union of public employees in the US.

He describes the efforts as the most determined since December, when banks succeeded in rolling back a rule on where they had to book their derivatives.

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At Wells Fargo, for example, the wealth, brokerage and retirement unit contributed 9.3 per cent of net income in the first quarter, up from 7.8 per cent a year earlier.

Bank of America, the home to Merrill Lynch and its famous "thundering herd" of financial advisers, earned returns on capital allocated to the wealth and investment management division higher than any other segment in the first quarter, at 22 per cent.

Supporters of the proposal are keen to sustain momentum until a public hearing by the DoL, to be held within 30 days of the end of the comment period on July 6.

The last time the department tried to tackle the topic in 2010-11, it backed down after fierce opposition from the retirement-savings industry and also from Capitol Hill.

Even with the personal backing of the president, "I never assume we're out of the woods," says Barbara Roper, director of investor protection at the Consumer Federation of America, which represents more than 250 advocacy groups.

"[Opponents] have a lot of money at stake in preserving the status quo, and lots of members of Congress willing to carry their water."

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