A group of nearly 30 congressional Democrats has written to the leaders of the Labor Department, the Securities and Exchange Commission, and the U.S. Commodity Futures Trading Commission expressing concern over a recent proposed rule redefining the meaning of the term “fiduciary,” saying it would have a negative impact on people with Individual Retirement Accounts and other retirement and savings plans.
In the letter, the New Democrat Coalition, led by Rep. Carolyn McCarthy, D-N.Y., and Rush Holt, D-N.J., voiced concern over the proposed rule.
The rule would redefine the term “fiduciary” in the Employee Retirement Income Security Act of 1974, also known as ERISA. They say the new definition would have a negative impact on the accessibility of valuable financial education and information, and would increase the cost and choice of financial advice for consumers.
“While the proposed rule is intended to protect employee participants and plan sponsors from unfair and deceptive practices, we are concerned that it would have an adverse effect; ultimately limiting access to investment education and information,” they said in the letter. “This would result in worse investment decisions by participants and would, in turn, increase the costs of investment products, services, and advice that are absolutely critical parts of a sound investment strategy for consumers.”
The letter was sent to Labor Secretary Hilda Solis, SEC Chairman Mary Schapiro, and U.S. Commodity Futures Trading Commission Chairman Gary Gensler. The New Dems urged the regulators to coordinate with each other to avoid duplicative and contradictory guidelines and to provide an opportunity for additional public comment through a transparent re-proposed rule process.
Congreewoman McCarthy explained the intent of the letter in an interview with Accounting Today, “Generally speaking, the changes would make the ERISA law so vague that it could lead to simple education and advice falling under ERISA status, which would be a problem, number one for the consumer, and number two for the provider that’s giving the information,” she said.
The changes could also have an impact on accountants providing financial planning advice, she noted. “I think it’s going to be extremely complicated for them, mainly because under the Dodd-Frank Act, we had mandated the SEC to conduct a study on investment advisors and broker-dealers,” said McCarthy. “That study, when it came back, recommended that the SEC establish a uniform standard of conduct when providing personalized investment advice to their customers. That is no less stringent than what is already under the Investment Advisers Act. What Labor is basically doing is conflicting the universal standard that they’re putting out, so it’s going to be making it extremely confusing, to be very honest with you, especially for the accountants and the professionals who are offering investment planning advice. What we’re trying to do is just to straighten that out to have a universal set of rules so there is no confusion. It’s just a bad rule for consumers.”
She said the agencies should all come up with one set of rules that don’t conflict with the SEC’s to allow the consumer to get as much information as possible.
McCarthy also commented on the Senate hearings on rolling back oil tax breaks to lower the federal budget deficit (see Senate Grills Oil Execs on Tax Breaks).
“When we’re talking about deficit reduction, we want to make sure that everything is on the table,” she said. “Everybody has to pay their fair share, especially with the amount of money the oil companies have made over the first quarter. They’re getting a free ride. I think we all have to pull in our belts. We’ve already seen the amount of money we’re cutting out of defense. I also agree with what we did in the years back when Clinton was president, with pay as you go. There are a lot of duplicative programs out there that we had reduced last year. We’re consolidating programs and I think that’s extremely important.”