House Approves Bill to Delay Fiduciary Rule
A measure that would put the brakes on the Department of Labor's proposal to establish a fiduciary standard for advisors to retirement plans was approved by the U.S. House of Representatives in a largely party-line vote on Tuesday.
The Retail Investor Protection Act sailed through on a 254-166 vote after a brief floor debate. The measure now now heads to the Senate, where members of both parties have expressed concern about the Labor Department's plan, though momentum has not built behind any legislative proposal.
The bill that passed the House on Tuesday, authored by Ann Wagner, a Missouri Republican, would block the Labor Department from implementing new rules for retirement-plan advisors until 60 days after the SEC finalizes its own, separate fiduciary rulemaking. Whereas the Labor Department is only focused on financial professionals working in the retirement space, the SEC has proposed a uniform fiduciary standard that would extend to broker-dealers the same obligation to provide advice in the best interests of their clients that now applies to registered investment advisors.
Wagner's bill would also direct the SEC to produce studies documenting real harms that investors have suffered resulting from the current regulatory regime, under which brokers are required only to make recommendations deemed suitable for their clients.
Additionally, the agency would have to demonstrate that a uniform fiduciary standard would not limit retail investors' access to financial advice under the legislation. Backers of the bill see threats to the availability of advice for middle- and lower-income Americans through both the SEC's and Labor's fiduciary proposals.
"We must remember what is at stake here. Americans invest trillions of dollars through IRAs, educational accounts and other investment vehicles," Wagner said in remarks on the House floor.
Thirty Democrats joined with 224 Republicans in voting for the bill's final passage. One hundred and sixty-five Democrats voted against the measure. That was in stark contrast to the strong show of bipartisan support the bill received in committee. In June, members of the Financial Services Committee voted 44-13 to advance Wagner's bill.
But several Democrats spoke out forcefully against the bill during Tuesday's floor debate, arguing in favor of the fiduciary proceedings at Labor and the SEC, both of which they say are imperiled by the legislation.
California's Maxine Waters, the ranking Democrat on the financial services panel, decried the "inappropriately titled" Retail Investor Protection Act.
"Simply put," she said, the legislation "just goes too far. The bill holds the Labor Department hostage while throwing out roadblocks for the SEC."
The provision mandating that the SEC conduct fresh market analysis before implementing a uniform fiduciary standard "creates a high hurdle for the commission to overcome," she said, warning that such a strong burden of proof would have the effect of "providing another avenue for the industry to sue the SEC."
Backers of the bill counter that the SEC has so far failed to demonstrate that a uniform fiduciary standard would mitigate any real consumer harm. Moreover, the twin fiduciary proceedings at the SEC and Labor need to be better coordinated to ensure that industry practitioners face a consistent set of regulations, they argue.
Despite the Labor Department's promises to the contrary, some industry groups have warned that the proposed revision to the 1974 Employee Retirement Income Security Act would effectively end the commission-based retirement advisory model, and that imposing a fiduciary responsibility would push many advisors and firms out of the retirement space, or out of business altogether.
"Working to ensure that the Department of Labor's rule proposal doesn't limit access to quality, affordable advice for middle class Americans is our top priority," Chris Paulitz, a spokesman for the Financial Services Institute, which has been an outspoken critic of the DoL proposal, wrote in an email. "This bill sends yet another message to the Department that many in Congress are concerned about their rule's impact on retirement advice for small investors."
Meanwhile, supporters of the fiduciary proposals were predictably disappointed with the passage of Wagner's bill. Count among those the Financial Planning Coalition, an advocacy group representing the FPA, NAPFA and the CFP Board of Standards that had circulated a last-minute letter this week to House members urging opposition to the bill.
"This legislation is an investor protection bill in name only," the coalition said in a statement. "In reality, it is a 'back door' attempt to undermine investor protection provisions in the Dodd-Frank Act and prevent the SEC and DOL from requiring advisors to put investors' interests ahead of their own."
The coalition is now calling on members of the Senate to oppose the measure. The group also said it was encouraged by a statement of policy the White House issued on Monday, saying that if Wagner's legislations landed on the president's desk, "his senior advisors would recommend that he veto the bill."
By coupling the Labor Department's proposal, which officials have indicated is nearly finalized, with the SEC's earlier-stage work on a uniform standard, the Wagner bill, if enacted, could delay the DoL rules by years, suggested Neil Simon, vice president for government relations with the Investment Adviser Association, which opposed the legislation.
But even as it stands now, non-binding and only with the imprimatur of the House, the bill could create political pressure that sets back both proceedings.
"We are concerned both for its impact on the Department of Labor, and frankly, very much for its impact on the SEC," Simon said.
This article originally appeared in Financial Planning.