Black pols oppose fiduciary rule

Several members of the Congressional Black Caucus are warning the Labor Department that the latter’s 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 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 scope of professionals defined as “fiduciaries.”

“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 seven fellow Democrats.

INVESTOR PROTECTION

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, introduced in 2010. 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, Assistant Labor Secretary Phyllis Borzi has said that the fiduciary-duty proposal will not prevent commission compensation.