Labor Secretary Thomas Perez on Tuesday revealed the DOL'smuch-anticipated redrawn fiduciary standard, taking aim atconflicts of interest by brokers that, he said, are costing unawareAmerican workers billions in lost retirement savings.

The new rule, he said, is designed to protect investors whileoffering “considerable flexibility” in how financial advisors getpaid. It's about providing “guardrails but not straitjackets,” hesaid.

Advisors, he said, should be able to do well “in their bottomline,” even with the new standard, which was approved by the Officeof Management and Budget after a 50-day review but is stillsubject to a public comment period and hearings.

The changes would extend protections to the $7.4 trillion heldin IRA accounts, a common vehicle for retirement savingsthat barely existed when the original rules were issued 40 yearsago.

Brokers would still be allowed to earn sales commissions andother fees paid by mutual funds as long as they sign a new“best-interest contract exemption” with their investors, Perezsaid.

“It’s a straightforward agreement so you know you’ll get advice oninvesting your retirement savings that puts your interests first,”Perez said in a blog post that accompanied the DOL'sannouncement.

The best interest contract exemption, the DOL said, would be usedby advisers who make investment recommendations to individual planparticipants, IRA investors and small plans.

It would require those advisers and their firms to formallyacknowledge their fiduciary duty and enter into a contract in whichthey pledge to give advice that is in the customer's best interestand to make "truthful statements about investments and theircompensation.”

So long as they enter such contracts, the DOL said, thoseadvisors can then receive common types of fees that fiduciaryadvisers could otherwise not receive under the law.

That includes commissions, revenue-sharing payments, and 12b-1fees.

Also, he said, the new standard “would not apply to brokers whojust take direct orders from customers and would not limit accessto financial education.”

Moreover, call centers, he said, could “continue to providefinancial education.”

The labor secretary has spentmuch of this year trying to rally support for stricter broker rulesas Wall Street lobbyists lined up in opposition to the Obamaadministration’s plan.

He noted Tuesday that the agency withdrew its orginal proposalin 2010 and "went back to the drawing board."

"Since then," he said, "we’ve worked with industry, consumergroups, retirement advocates, academics, and the public to gatherfeedback and rework the rule."

Also read: Clearlines of support, opposition for fiduciary rule

In a recent speech to a group of consumeradvocates, Perez said that one of his top priorities isto make brokers who manage retirement accounts put their clients’interest ahead of their own. He said current rules enable biasedfinancial advice that jeopardizes workers’ nest eggs.

Perez in that appearance likened the situation with retirementsavings to the sale of complex mortgages in the run-up to thehousing market collapse.

“This is a first cousin of what I saw in the mortgagespace,” Perez said at the Consumer Federation of Americaevent in Washington. “Folks did not know they were victims becausethey went to someone they thought they trusted. It turned out thetrust may have been misplaced.”

Perez is battling a phalanx of industry lobbyists as heseeks to eliminate what the Labor Department calls conflicts ofinterest that cost investors billions of dollars annually.

Labor’s proposal, years in the making, would require brokers to putretirement savers’ interests first, a standard known as fiduciaryduty. It would apply to retirement accounts such as IRAs and401(k)s, which now hold more than $11 trillion.

Perez said some brokers sell inappropriate investments toretirement savers with “compound fees and costs that can lingerlike a chronic illness.” According to Obama administrationeconomists, investors lose as much as $17 billion a year toinferior products and “backdoor fees.”

Also read: NAPA’sdeep reservations about DOL’s broker rules

Under current rules, brokers can sell any product that is“suitable,” meaning it fits an investor’s needs and tolerance forrisk. White House officials said that compensation model and thesuitability standard allow brokers to recommend products that nethigher fees or commissions without yielding better returns forinvestors.

Wall Street groups and brokers say the rulewill impose added costs that will prompt brokers to drop clientaccounts with less than $50,000 of assets, leaving those investorsto manage their own savings. Those investors pay less under thecurrent business model than they would if brokers were required towork under a fiduciary duty, the industry says.

The proposal has been under reviewed by the OMB for a littleunder two months. It was expedited after President Obamaendorsed the DOL's approach in a speech at AARP’s headquarters onFeb. 23.

Adoption of a final rule could take six months or longer,according to RBC Capital Markets, providing plenty of time forcongressional scrutiny and industry lobbying.

Now that the OMB review is complete, a 75-day public comment periodwill commence. Challenges are expected from Wall Street, in thecourt of public opinion as well as potentially in the legalrealm.

"The process is far from over," Perez told reporters Tuesday."We're going to conduct a very careful, methodical review."

Links to the proposed fiduciary rule, prohibited transactionexemptions, economic impact analysis and other materials areavailable at www.dol.gov/ProtectYourSavings/.

Bloomberg News contributed to this report.

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