U.S. lawmakers slam Labor Dept for fiduciary plan
* Labor Department's data request "impractical" -lawmakers
* Plan may restrict investor access to advice -lawmakers
* Flap likely to stall plan until after presidential election
By Suzanne Barlyn
June 27 (Reuters) - The U.S. Department of Labor's divisive plan to establish more stringent legal responsibilities for retirement plan advisers could be in trouble.
U.S. House Democrats lashed out at the Labor Department in a letter this week over its efforts to revise a controversial proposal that would update the definition of "fiduciary" under the Employee Retirement Income Securities Act, or ERISA.
It is the latest turn in a tussle over a plan that would apply to both advisers to retirement plans and those who give advice to investors in individual retirement accounts. Many financial advisers are concerned the rule will limit the types of fees they can collect for servicing IRA accounts and make it a money-losing prospect to provide such advice.
The plan, in broad terms, pits the Labor Department against various industry groups. The department is concerned that advisers may be swayed to recommend securities, such as certain mutual funds, because of special compensation their brokerages receive for promoting them. Those recommendations could be costly to investors, the department says.
Brokerage industry trade groups such as the Securities Industry and Financial Markets Association (SIFMA) and the Financial Services Institute, however, say the change would make providing advice more expensive for investors who need it the most.
The letter to Labor Department Secretary Hilda Solis, signed by 33 Democratic lawmakers on Monday, attacked the Labor Department for everything from its approach to a cost-benefit analysis it is conducting in anticipation of the proposal, to an alleged lack of adequate coordination with the U.S. Securities and Exchange Commission, which is considering a separate type of fiduciary proposal.
Among those who signed the letter was Rep. Barney Frank, a Democrat from Massachusetts and ranking member of the House Financial Services Committee.
The ongoing flap will likely stall the fiduciary proposal until after the 2012 presidential election, said Kent Mason, a lawyer for Davis & Harman LLP in Washington who advises clients on retirement plan issues.
"I'd say (the rule) is in trouble," said Jason Roberts, chief executive of the Pension Resource Institute, a retirement plan consultancy in Manhattan Beach, California.
He said the plan lacked a "clear directive" from the start, since Congress never insisted upon it in a federal law.
The Labor Department is reviewing the letter, a spokesman said.
In September, the Labor Department withdrew an initial rule it had proposed in 2010 after industry groups and lawmakers expressed concerns about costs of the rule to the industry. There were also continued questions about whether the rule would clash with SEC's yet-to-be-written fiduciary proposal.
Lawmakers are expressing an additional concern: that the proposal could prevent investors from getting advice they need because the cost would be prohibitive.
The Labor Department "may be headed in a direction that could actually restrict access to investment education and information," their letter said.
Advisers say a fiduciary standard of care could force many IRA investors to move to advisers who charge a flat annual fee - usually a percentage of total assets - for advice. That "fee-based" option could be more expensive for investors, they say.
BATTLE OF WORDS
Lawmakers sent the letter just days after Phyllis Borzi, assistant secretary of the Labor Department's Employee Benefits Security Administration, wrote to members of the U.S. House Committee on Education and the Workforce with an update on the Labor Department's progress with the proposal.
Borzi wrote that she was "disappointed" the department did not receive much of the data it requested from the securities industry in order to analyze costs and benefits of the plan.
Lawmakers who signed the letter to Solis also took issue with a "sweeping" and "impractical" data request sent to securities industry groups. "The Department asked industry representatives for detailed data on every investment, every investor, and every recommendation for the last 10 years," they wrote. That, they contend, is too cumbersome.
The Labor Department wants the data so it can see how advisers to retirement plans and IRAs are paid for managing and advising the accounts, partly to test the cost-benefit of the new rule and - some say - partly to determine whether compensation practices influence advisers' recommendations.
SIFMA, the trade group, has also expressed concerns about the Labor Department's ability to keep the data confidential. The data requested includes sensitive client information.
While the department has said it is willing to work with SIFMA on the issue, the sides are at a standstill.
Kenneth Bentsen, SIFMA executive vice president for public policy and advocacy, said the logistical difficulties for protecting confidentiality of brokerage customers are insurmountable. Among them are getting permission from clients to share data and the time it would take to remove personal information from every document.
The debate over how much data is enough frustrates some investor advocates, who say the Labor Department is trying to do an analysis that Congress typically demands prior to a new rule.
"Then, when a regulator shows it is serious about collecting data to support a thorough economic analysis, they get slammed," said Barbara Roper, director of investor protection for the Consumer Federation of America.
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