Congressional Black Caucus raises concern about DOL fiduciary duty rule

Group worries that proposal would disparately affect African American retirement savers, reps

Mar 27, 2013 @ 2:21 pm

By Mark Schoeff Jr.

waters, DOL, Fiduciary
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Rep. Maxine Waters, D-Calif., was one of eight lawmakers to sign letter.

Several lawmakers are warning the Labor Department that its effort to expand the number of financial advisers who fall under the nation's retirement law may end up hurting African-American investors.

In a March 15 letter to the acting Labor Secretary Seth Harris, eight members of the House Financial Services Committee who are also members of the Congressional Black Caucus expressed reservations about a potential DOL regulation that would expand the definition of “fiduciary.”

The agency originally proposed the rule in 2010. It was withdrawn in the midst of fierce resistance from the financial services industry. A revised rule is expected to be released this summer.

“We maintain concerns that if the re-proposal reflects the department's initial fiduciary proposal, it could disparately impact retirement savers and investment representatives in the African-American community,” states the letter, signed by Rep. Maxine Waters, D-Calif., ranking member of the Financial Services Committee, and fellow Democratic Reps. Gregory Meeks (N.Y.), Gwen Moore (Wis.), Emmanuel Cleaver (Mo.), Al Green (Texas), William Lacy Clay (Mo.), Terri Sewell (Ala.) and David Scott (Ga.).

The Labor Department has argued that investment advice standards surrounding retirement plans should be strengthened in order to better protect workers and retirees who must now provide much of their own nest eggs through 401(k) plans and individual retirement accounts.

The financial industry strongly resisted the original proposal. Lobbyists asserted that the rule for the first time would place a fiduciary standard on brokers when selling IRAs, potentially threatening commissions.

The legislators also highlighted this point.

“If brokers who serve these accounts are subject to [the Employee Retirement Income Security Act's] strict prohibitions on third-party compensation, they may choose to exit the market rather than risk the potentially severe penalties under ERISA for violations,” the lawmakers wrote. “If that occurs, it could cause IRA services to be unattainable by many retirement savers in the African-American community.”

A DOL spokesman was not immediately available for comment.

In speeches and appearances before congressional committees over the past year, Phyllis Borzi, assistant secretary of Labor, has said that the agency's fiduciary-duty proposal will not prevent commission compensation.

As the agency's re-proposal draws nearer, other lawmakers also are expressing misgivings.

In a hearing last month, Sen. Jon Tester, D-Mont., urged Securities and Exchange Commission Chairman Elisse Walter to speed up the agency's consideration of its own fiduciary-duty rule. He wants the SEC to go first.

“I want it ASAP and here's why: The Department of Labor is [messing] around with this, and I don't think that's helpful,” Mr. Tester said in a brief interview following a March 19 Senate Banking subcommittee hearing he led on an unrelated topic.

The House lawmakers echoed Mr. Tester in their letter.

“It is critical that the department continue to work together with appropriate agencies and stakeholders on a balanced approach to both protect investors and maintain affordable access to retirement savings products during this time of economic uncertainty,” they wrote.

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