House defies Obama, votes to delay rules on financial advisers

The House voted Tuesday to slow down the government process of setting rules for financial institutions that advise small, retail investors around the country.

Members passed the Retail Investor Protection Act, H.R. 2374, in a bipartisan 254-166 vote. Despite a veto threat from the Obama administration, 30 Democrats joined Republicans in passing the bill.

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The bill prevents the Department of Labor from issuing rules under the Dodd-Frank financial reform act that describes when financial advisors are considered a fiduciary, which means they must must work in their clients' best interest. Under the bill, Labor would have to wait until the Securities and Exchange Committee (SEC) acts first in this area.

Supporters say this delay is needed to ensure Labor does not issue a conflicting set of rules that could impose new standards on financial advisers that could lead to increase costs for investors.

"Due to technological advances and the relatively low cost associated with operating an online platform, these brokers can offer trades and investment advice for as little as seven dollars," said House Financial Services Committee Chairman Jeb Hensarling (R-Texas.).

"But should a fiduciary standard be applied to these online brokers, the impact on investors could be one or all of the following: higher fees per trade, higher fees for investment advice, or brokers may simply stop providing this investment advice to less affluent customers altogether. That is not fair."

The bill would also require the SEC to first assess whether retail customers are being harmed by the ability of some broker-dealers to operate under a lesser standard of care than investment advisers.

While dozens of Democrats supported the bill, many other Democrats took the side of the Obama administration, and argued that Labor should be allowed to set up new fiduciary standards. Rep. Maxine Waters (D-Calif.) and others said millions of people are looking to save for retirement, and that they have a right to know that a wider range of financial advisors are required to act in their best interest.

"Given these realities, it is necessary for the department to make sure that the professionals offering retirement advice have a duty to put their clients' interest first before their own, or at the very least, tell their customers that they may be conflicted," Waters said.

The House held the vote just a day after the White House said Obama would veto the bill. The White House issued a statement on Monday saying Labor is working with the SEC on the rule, and that there is no risk of competing requirements between the two agencies.

"The bill ignores the fact that significant work has already been conducted in both agencies and that the agencies have included and continue to include the public, industry, and numerous stakeholders in their rule making processes," the White House said. "The bill would hinder efforts to protect consumers from conflicts of interest among brokers, dealers, financial advisors, and others whose incentives may be misaligned with investors, potentially leading to deceptive and abusive practices."

Before the final vote, members rejected an amendment from Reps. George Miller (D-Calif.) and John Conyers (D-Mich.). That language would have authorized Labor to issue a fiduciary duty rule that ensures the availability of reasonable compensation to financial service providers, and required a study on the effect of current investment industry practices on investors.

But members rejected that amendment in a 174-243 vote.