CEO of the Financial Industry Regulatory Authority Richard Ketchum speaks during the Global Wealth Management Summit in New York

Wall Street regulator cites concerns with Labor Department’s broker rule

By Sarah N. Lynch

WASHINGTON (Reuters) – A leading Wall Street regulator on Friday voiced concerns over the U.S. Labor Department’s plan to reduce conflicts at brokers offering retirement advice, saying some aspects of it do not accurately reflect how brokers operate.

The Labor Department’s draft rule “is a very good faith effort,” said Richard Ketchum, the chief executive of the self-regulatory organization known as Financial Industry Regulatory Authority (FINRA), on the sidelines of a congressional hearing.

But some parts of the draft that describe broker dealing activity, he said, “don’t really describe any broker-dealer model that I am aware of.”

Ketchum’s remarks could help bolster the arguments of the brokerage industry, which has been fiercely lobbying against the Labor Department’s rulemaking effort.

In April, the Labor Department unveiled a draft plan which calls for brokers who offer retirement advice to enter into contracts with investors which guarantee they will not steer clients into high-fee products that are not in their best interest.

The Labor Department’s plan would hold brokers to a higher “fiduciary standard.” Today, brokers meet a lower standard in which they must sell products that are “suitable.”

The industry has said the plan could vastly limit the kinds of investment options that are available to retirees.

Moreover, the Labor Department only has jurisdiction over a narrow slice of products, such as sales involving individual retirement accounts.

For this reason, the industry has pressed for the Securities and Exchange Commission, which oversees brokerages more broadly, to take the lead and write a more comprehensive rule that also preserves investors’ choice.

SEC Chair Mary Jo White has said she plans to move ahead to craft a fiduciary rule for retail brokers.

If a rule is ultimately adopted, FINRA as the primary on-the-ground self regulator for brokers, would be tasked with examining firms for compliance with it.

Ketchum told lawmakers on Friday that while the Labor Department has the power to issue a rule, it should really be the SEC taking the lead.

“I regret the possibility of having different standards with… the Labor Department’s proposal,” he told a House of Representatives financial services panel.

He later revealed for the first time that FINRA, as well as the SEC, had discussions with the Labor Department prior to the draft’s release.

He said FINRA is mulling whether to send a comment letter to the Labor Department, which is currently seeking public feedback on the draft.

(Reporting by Sarah N. Lynch; additional reporting by Suzanne Barlyn in New York; editing by Andrew Hay)


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