Finra Chief Blasts Labor Proposal for Stricter Broker Rules

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The head of Wall Street’s self-regulator blasted the Obama administration’s push to impose stricter standards on brokers who handle retirement accounts, saying the rule would make it difficult for smaller investors to get advice.

In a speech Wednesday, Financial Industry Regulatory Authority Chief Executive Officer Richard Ketchum said that the Labor Department’s April proposal would create new legal risks for brokers and probably reduce the number of investment options they would offer. The remarks echo the lobbying talking points used by financial companies opposed to the proposal.

Ketchum, whose group runs on fees paid by the industry, also said he was “disappointed regarding some of the recent rhetoric” used to support the Obama administration proposal. “This strident dialogue is a disservice to a wide range of investment firms truly working to serve their clients’ interests.”

The industry has spent more than four years fighting the Labor Department’s effort. The proposal -- which could be enacted as early as the end of this year -- has been opposed by large banks such as Morgan Stanley and Wells Fargo & Co., as well as mutual fund companies, independent brokers and insurers.

Separately Wednesday, one of President Barack Obama’s chief economic policymakers, Jeffrey Zients, warned the industry that a strategy of trying to stall the rules wouldn’t work. Companies have had “more than ample time” to raise concerns, he said at a speech in Washington.

“Unfortunately, for some special interests any good rule on conflicts of interest would be no rule at all,” said Zients, director of the National Economic Council. “That’s not going to happen. Inaction is not an acceptable outcome with the retirement security of so many Americans at stake.”

The Obama administration proposal calls for retirement brokers to put their clients’ best interest first, a requirement known as a fiduciary duty. Under current rules, brokers’ recommendations must be “suitable” for clients, meaning the investments have to fit the customer’s needs and tolerance for risk.

The Labor Department argues that investors are vulnerable because brokers often receive compensation from mutual funds and other companies in return for selling their products. White House economists also raised alarms about the practice, saying investors lose as much as $17 billion a year to inferior products and “backdoor fees.”

In his speech Wednesday, Ketchum said that the criticism of the industry “ignores the strengths of the present securities regulatory system, which has evolved over decades to encourage a culture of compliance.”

Finra is the front line regulator and enforcer for brokers; the group is overseen by the Securities and Exchange Commission.

Ketchum said he supports the higher standard for brokers providing investment advice to retail investors, but said the rule should be written by the SEC. Its chair, Mary Jo White, announced in March that the agency would craft its own fiduciary standard rule though it has yet to reveal any proposal.

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