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Wall Street study pans White House analysis of retirement advice rule

WASHINGTON (Reuters) – A Wall Street trade group released a new study on Monday that takes aim at the economic analysis the White House is using to justify new rules designed to curb conflicts of interest and “hidden fees” that brokers charge customers for retirement investment advice.

The report, commissioned by the Securities Industry and Financial Markets Association (SIFMA), accuses the White House of using cost estimates not backed up by academic literature and failing to quantify the benefits investors may reap from the current regulatory structure.

“It is a basic tenet of economics that to conduct a cost-benefit analysis of an alternative public policy one needs to have a well-articulated proposal,” says the study, which was written by economists at National Economic Research Associates (NERA).

“The Report does not put forward such a proposal.”

Monday’s study comes as the industry anxiously waits for the Department of Labor to release a new draft of proposed rules which will hold brokers who offer retirement advice to a higher “fiduciary standard” by requiring them to put their clients’ financial interests ahead of their own.

Because brokers are not held to this standard today, the White House claims that American retirees may be the victims of conflicts of interest and are paying fees and payments that on average lead to a full percentage point lower annual return on retirement savings, at a cost of $17 billion a year.

The proposal is expected to be unveiled in the near future, after an earlier version was scrapped amid heavy criticism by the industry.

The efforts by Wall Street to question the economics underpinning the rule could help lay the groundwork for a legal challenge down the road.

Trade groups such as the U.S. Chamber of Commerce have successfully beaten back financial regulations in the past by convincing federal courts that U.S. regulators failed to conduct a proper analysis of the costs and benefits of the rules.

In the previous draft of the Labor Department’s rules, Wall Street critics hounded the agency over what it said was a lack of solid economic study to justify the rule.

The study released on Monday takes direct aim at claims by the White House that American investors are losing $17 billion a year due to conflicted brokers.

Such cost estimates “are not directly found in the academic literature,” the study says.