Business groups unload on financial adviser rule

Business groups are flooding the zone with criticism of President Obama’s proposed regulations for financial advisers.

Advocates for industry are lining up to bash the new regulations, known as “fiduciary standards,” arguing the more stringent disclosure requirements for advisers will have a host of negative consequences for the country.

{mosads}The Securities Industry and Financial Markets Association (SIFMA), U.S. Chamber of Commerce and Financial Industry Regulatory Authority (FINRA) were among the K Street heavyweights that denounced the proposal on Monday, the day before the Department of Labor’s comment period for the proposal was set to close.

Their criticism, while wide-ranging, centered on one idea: that the proposed requirements would raise the costs of obtaining financial advice for low- and middle-income Americans who need it the most.

In its comment letter, SIFMA wrote that the rule as proposed would “eliminate conversations that were intended to help investors prepare for retirement, leaving them without investment guidance.”

“We believe DOL is the wrong regulatory to be in the head here, and the rule as written completely misses the mark,” said Kenneth E. Bentsen, Jr., SIFMA president and CEO.

Obama and liberal supports of the fiduciary push argue the requirements are needed to protect consumers from unscrupulous financial advisers who scam customers by selling faulty advice while pocketing hefty commissions.

“If your business model rests on bilking hard-working Americans out of their retirement money, then you shouldn’t be in business,” Obama said at an event in February with Sen. Elizabeth Warren (D-Mass.) touting the proposal.

The backlash against the plan from the business community has been unusually severe, with groups across Washington fighting tooth and nail to prevent it from moving forward.

One element of the plan that is particularly contentious is the lead role of the Labor Department. Industry groups say the proposal should be under the jurisdiction of the Securities and Exchange Commission (SEC), which has traditionally been the lead regulator for the financial services industry.

The Chamber’s comment letter called the proposal a “jurisdictional land-grab.”

“The Department should not attempt to supersede the financial regulations developed over decades … with a new, untested, one-size-fits-all federal regulation that tells people what kind of retirement advisor they may have,” the Chamber letter said.

But DOL officials maintain that they have jurisdiction in regulating retirement financial advice, such as 401(k) accounts, while SEC officials regulate other investment accounts.

With the comment period for the fiduciary rule now closing, advocates on both sides of the debate are stepping up their efforts.

Brad Campbell, counsel at Drinker Biddle and Reath LLP, said on a Chamber conference call that he is hopeful the administration will engage in “negotiated rule-making” with the industry to hear their concerns. The Chamber has said repeatedly called the draft of the proposal “unworkable.”

“Unfortunately, the Department has chosen an approach that is unduly complicated and wrought with serious defects for this regulatory initiative. Indeed, the result is an unworkable rule that ultimately harms American investors and retirees,” The Chamber said in its comment letter to DOL.

The administration is on pace to implement the fiduciary rule before Obama leaves office, but DOL officials failed to implement the rule in 2010, when they first proposed a version of it.

Groups like AARP and progressives are backing the regulations, arguing they will protect consumers.

— Updated at 6:20 p.m.