By Suzanne Barlyn
WASHINGTON (Reuters) - The head of the Financial Industry Regulatory Authority (FINRA) on Wednesday criticized a U.S. Labor Department plan to reduce conflicts among brokers who offer retirement account advice on Wednesday, saying it is "not the way to go."
The Labor Department plan, unveiled in April, would require brokers who offer retirement advice to enter into "best interest" contracts with investors, in an effort to ensure customers are not steered into high-fee products.
But that would shift enforcement responsibilities for alleged broker misconduct involving Individual Retirement Accounts (IRAs), from regulators, to investors, who would have to enforce the contracts in arbitrations or class actions, Richard Ketchum, chairman and chief executive officer of FINRA, said in prepared remarks at its annual conference in Washington.
The plan "would leave enforcement entirely to investors who feel they?re wronged," Ketchum later told reporters.
A Department of Labor spokesman did not immediately respond to requests for comment.
FINRA, Wall Street's industry-funded watchdog, oversees more than 4,000 firms and 638,000 brokers.
The U.S. Securities and Exchange Commission is the "right agency" to develop a best interest standard, Ketchum said. However, designing such a standard would be "challenging."
Ketchum's remarks are the latest in a long-running debate about the standards that should apply to the different types of advisers who offer investment advice.
Industry rules require Wall Street brokers, who must register with FINRA, to recommend investments that are "suitable" for investors, based on factors such as their age or risk tolerance. Investment advisers who register with states and the SEC, however, must act as "fiduciaries," or in their clients' best interests.
Ketchum has long supported a broker fiduciary standard for brokers and believes that it "is the direction we must go," he said
Nonetheless, Ketchum said he was "disappointed" by "recent rhetoric about the broker-dealer industry and its regulation that accompanied the Labor proposal." He later declined to identify or elaborate the sources of that rhetoric.
In February, the Labor Department plan became a national political issue when President Barack Obama announced his support for the idea, saying it would protect investors from being steered into costly retirement investments that produced high commissions for brokers but low returns for investors.
The recent "strident dialogue" ignores the present regulatory system which demands that firms disclose conflicts and also holds brokers and firms accountable for failing to meet industry rules and standards, Ketchum said.
(Reporting by Suzanne Barlyn; Editing by Jeffrey Benkoe and W Simon)
