By Sarah N. Lynch
WASHINGTON (Reuters) - The U.S. Labor Department secretary will try to persuade skeptical Republican lawmakers on Wednesday that new draft rules to rein in conflicts posed by brokers who offer retirement advice reflect "the right middle ground in providing greater consumer protection."
In prepared testimony before a House of Representatives labor and pensions committee, Labor Secretary Tom Perez will present both economic research and anecdotes from retirees who lost their money after getting bad advice from their brokers as evidence for why new fiduciary rules are needed.
"My review of the evidence has demonstrated that there is in fact a large problem that needs to be solved," he said, noting that he has heard from too many Americans "whose golden years became tarnished when the savings they thought would carry them through retirement disappeared into high fees and poor performance."
The Labor Department is currently seeking public comment on proposed new rules that would require brokers offering retirement advice to enter into contracts with customers that require them to act in their clients' best financial interest.
The department argues the rules are needed because brokers are currently held to a lower "suitability" standard and may recommend retirement products that boost commissions, even if they are not the best for their clients.
The financial services sector has staunchly resisted the department's efforts, saying the plan could vastly limit the kinds of investment options available to retirees and curb compensation for brokers.
In addition, the industry wants the Securities and Exchange Commission to take the lead in writing a best-interest standard because the SEC polices brokers and has broader jurisdiction than the Labor Department.
The opposition has been so strong that the Labor Department was forced to scrap a first draft of the rule several years ago and completely re-write it. The new draft was unveiled in April. [ID: nL2N0XB1LB]
Many Republicans, and even some moderate Democrats, have sided with the industry.
On Tuesday, for example, a U.S. House appropriations panel unveiled a draft bill that would ban the Labor Department from spending money to implement the rule.
Perez will tell lawmakers on Wednesday that the latest draft has come a long way from the initial version and contains numerous provisions that strike a compromise.
There is a "broadening consensus" on how to tackle conflicts in the industry, he said.
(Reporting by Sarah N. Lynch)