WASHINGTON (Reuters) - A top U.S. securities regulator on Tuesday blasted a proposed Labor Department rule that aims to make it harder for brokers who offer retirement advice from steering clients into higher-fee products, calling the plan "rampant nanny-statism."
Securities and Exchange Commission Republican member Daniel Gallagher said in a public comment letter that the Labor Department's plan would actually hurt the middle-class investors it is designed to help.
The Labor Department "should scrap" the plan and "end the rampant nanny-statism" that is motivating the rule, he wrote.
This week marked the closing of a public comment period on the plan, unveiled in April by the Labor Department. It would forbid brokers who offer retirement advice from steering clients into higher-fee products, unless it serves the clients' financial interests.
The Labor Department has been trying for several years to get the plan finalized, but it has faced a major backlash by the industry and by many Republicans.
Gallagher and other critics say the rule might harm ordinary investors by limiting options available to them.
They argue that if brokers cannot charge commissions, they might have to charge a fee based on a percentage of assets. That pricing scheme could be too costly for some Americans, they say.
Many have urged the Labor Department to let the SEC, the primary regulator for the sector, take the lead on writing a new best interest standard.
Although the Labor Department and SEC Chair Mary Jo White have said the two agencies extensively discussed the draft rule, Gallagher said in his letter he fears those talks "have borne no fruit" and lamented the draft plan fails to even mention the SEC's extensive regulatory regime already in place for brokers.
Gallagher's letter will likely add fuel to an already growing fire over the Labor Department's plan.
Last week, the Financial Industry Regulatory Authority (FINRA), Wall Street's self-funded regulator, also sent a comment letter which blasted the proposal.
Public hearings on the rule are slated to take place at the Labor Department later this summer.
Reporting by Sarah N. Lynch; Editing by David Gregorio