As we wrote about here, in April the Department of Labor issued its highly anticipated, re-proposed regulation addressing the standard of care for broker-dealers and other financial professionals who provide retirement investment advice. Since its release, the proposed rule has come under fire from critics who maintain that the DOL proposal, while well intentioned, will ultimately limit access to affordable retirement services and result in investor confusion. Last week, the chorus of opposition grew louder as the proposed rule’s 90-day notice-and-comment period came to an end.

Sensing the growing opposition, earlier this month Timothy Hauser, the Deputy Assistant Secretary for Program Operations in the DOL’s Employee Benefits Security Administration (“EBSA”), signaled that the DOL is open to reworking its controversial fiduciary proposal. Speaking at a meeting of the Securities and Exchange Commission’s Investor Advisory Committee, Mr. Hauser said that, while the DOL is committed to addressing the issue of conflicted investment advice, the agency is not “wedded to any particular choice of words or regulatory text.”

“We’ve identified what we believe are demonstrable injuries that flow from the current compensation structure – the current way advice is delivered to retirement investors,” Mr. Hauser told the committee. “We’re committed to doing something to fix that problem.” Still, Mr. Hauser promised that the agency would approach the rulemaking process with an open mind. “The point is to improve this marketplace, not to defend the details of our package,” he explained. “There will be changes – no doubt about it.”

Secretary of Labor, Thomas Perez, echoed this sentiment last week in testimony before the Senate Subcommittee on Employment and Workplace Safety, assuring that, “as long as we don’t lose sight of the North Star – an enforceable best-interests commitment – we are very flexible on the question of how to get this work done.”

But some influential stakeholders, including SEC Commissioner Daniel M. Gallagher, do not favor minor surgery, but rather have encouraged the DOL to withdraw its proposal. Commissioner Gallagher, in a comment letter submitted on his own behalf, urged the DOL to “scrap” its proposal and start over. He warned that the current proposal will give firms a perverse incentive to stop offering certain retirement services: “Broker-dealers utilizing a commission-based fee structure will find it difficult, if not impossible, to navigate the labyrinth of prohibitions and exemptions contemplated by the proposal, and many will make the unfortunate – yet entirely rational – choice to stop servicing certain retirement accounts.” Commissioner Gallagher explained that, as a result, firms will move their high-net-worth clients into (more expensive) fee-based accounts and “fire” their less wealthy counterparts.

Commissioner Gallagher also tempered expectations regarding the prospect of a uniform best interest standard implemented by the SEC – an idea that seemingly has broad industry support. Commissioner Gallagher referred to the DOL rulemaking as a “fait accompli” and wrote, “[T]hose who believe that the SEC can stave off the heavy hand of DOL are chasing fool’s gold.” Instead of a uniform, industry-wide standard, Commissioner Gallagher predicted that if the SEC moves forward, “the industry will most likely end up with two incredibly burdensome and redundant rules.”

In addition to Commissioner Gallagher, members of the U.S. House of Representatives have also encouraged the DOL to throw out the current proposal. As reported by The Hill last week, a bipartisan group of Congressmen led by Representatives Ann Wagner, Andy Barr, David Scott and Lacy Clay circulated a letter to their colleagues encouraging the DOL to withdraw the current proposal and start the rulemaking process over again. The letter cited stakeholder concerns and noted the “strong possibility that a final rule may widely differ in its substance from the initial proposal or contain provisions that were not part of the proposed regulation.”

That said, not every influential commenter has explicitly asked the DOL to withdraw its proposal. On July 17, 2015, the Financial Industry Regulatory Authority (“FINRA”), whose Chairman and CEO, Richard Ketchum, has been highly critical of the proposal, submitted a 21-page comment letter to the DOL. The letter reiterated many of concerns raised by Mr. Ketchum over the last three months. Although FINRA praised the DOL for “raising public awareness about the need to ensure that retirement investors can obtain financial advice without being subject to abusive or predatory sales practices,” it noted that the DOL proposal, as currently drafted, falls short in a number of ways.

Among other things, FINRA highlighted the fact that, under the DOL proposal, a different standard would apply to broker-dealers when they provide retirement-related investment advice than when they provide investment advice that is not retirement- related. FINRA expressed concern that this “fractured approach” would confuse both investors and brokerage industry professionals. Adding to the uncertainty, FINRA emphasized, the DOL failed to incorporate elements of the current regulatory regime. Because the DOL introduced a number of new concepts – many of which are not well defined – FINRA anticipated the need for interpretive guidance on various issues.

To the extent the DOL plans to proceed with a final rule, FINRA urged it to make, at a minimum, the following changes to the current proposal: (1) clarify the scope and meaning of the best interest standard; (2) simplify treatment of differential compensation; (3) anchor the proposal around the existing (and already robust) securities regulatory framework; (4) eliminate conditions that do not meaningfully address conflicts of interest; and (5) clarify the impact of non-compliance. Like Commissioner Gallagher, FINRA maintained that if the current proposal is adopted, many broker-dealers will abandon small accounts and begin charging bigger accounts a heftier asset-based fee.

The final chapter has yet to be written and it’s expected that the future of the proposed rule will come into better focus after EBSA holds its public hearings next month.