The Obama administration’s effort to rein in financial advisers who profit at the expense of their clients’ retirement has run into bipartisan wall of criticism.
Opponents of the expected Department of Labor (DOL) rule, expected to be released in coming months, touted this week’s bipartisan vote in the House Financial Services Committee as proof of momentum against the new regulation.
The proposal would broaden the definition of a “fiduciary” under the 1974 Employee Retirement Income Security Act to try and protect against investment professionals’ conflicts of interest around retirement accounts.
The department first proposed the rule in 2010, but it was quickly withdrawn after heated public criticism and heavy lobbying from the financial services industry.
Opponents worry that it would have the unintended consequence of making it difficult for many brokers to handle Individual Retirement Accounts (IRAs) held by the average investor.
The House committee on Wednesday passed a bill with a bipartisan 44-13 vote requiring the DOL to delay the rule for 60 days after the Securities and Exchange Commission (SEC) finalizes similar regulations, which consumer groups say will likely be more lenient.
The Dodd-Frank Act does not specifically require the SEC to issue a rule, though. Instead, it writes that the commission “may” write a rule, “as necessary or appropriate.” The commission has been analyzing whether to propose the rule.
The bill also makes the SEC submit a formal finding that its rule would not increase confusion for brokers and investors, which the commission has opposed.
In a letter to the Financial Services Committee this week, SEC Chairwoman Mary Jo White said the legislation “would layer on new statutory requirements for the Commission to satisfy before finalizing any such rules, which could impede this investor-focused initiative in what already has been a multi-year process.”
“This is about people trying to prevent the DOL from acting to protect retirement plan participants from abusive practice,” said Barbara Roper, director of investor protection with the Consumer Federation of America.
Rep. Ann Wagner (R-Mo.), who introduced the bill, said in a statement after it passed through the committee that it “would ensure that retail investors – families and individuals around the country – are not harmed by misguided regulations coming out of Washington.”
“It’s not often that we can pass something like this with this broad bipartisan support,” a congressional aide said, arguing that the bipartisan backing indicates momentum against the DOL rule.
Members of the Congressional Black and Hispanic Caucuses have also expressed concern about the DOL’s proposal.
In a letter to acting Labor Secretary Seth Harris, they worried the rule “will disadvantage those it aims to help” and “could severely limit access to low cost investment advice.”
“There’s a real risk that the concerns that have been raised over the DOL proposal have been raised by Democrats and Republicans alike,” said Roper.
She added the House committee vote was “very frustrating,” though “you’d be hard pressed to find a more pro-securities industry group of Democrats” than those on the committee.
Wagner’s legislation does not currently have a counterpart in the Senate, though her office is working on reaching out.
Senators of both parties have expressed opposition to the DOL rule, however.
Sen. Johnny Isakson (R-Ga.) said in a statement to The Hill that the rule would prevent investment professionals from accessing 7.2 million IRAs. “DOL should reconsider its approach on this issue, or at the very least collaborate with the SEC to prevent wasteful overlap,” he said.
A DOL official said the department is aware of the concern about a potential overlap with SEC rules.
“The two agencies are continuing their long-standing relationship by working together to ensure that compliance with one rule does not put plan sponsors or financial services providers out of compliance with the other,” he said.
Isakson and Sen. Kay Hagan (D-N.C.) questioned Thomas Perez, President Obama’s nominee to lead the DOL, about the proposal when he came before the Senate Health, Education, Labor and Pensions Committee in April.
In the nomination hearing, Perez pledged that he “will be actively and immediately listening and learning from all of the senators and other stakeholders from whom I’ve heard feedback.”