When Congress comes back from its summer recess in September, lawmakers will only have a few weeks to press the Department of Labor to delay a pending proposal to strengthen investment-advice rules for retirement plans.
Originally floated in 2010, it would expand the definition of “fiduciary” and apply retirement-law advice requirements on a wider range of advisers. It was withdrawn following fierce opposition from the financial industry, which asserted that the rule would threaten commissions for brokers selling Individual Retirement Accounts.
The DOL maintains that tougher rules are required to protect investors from conflicted advice, as they build their retirement nest eggs on their own through defined contribution plans.
A re-proposal is expected in October. With the clock ticking, the situation is becoming tense – and lobbyists are earning their money. But are they going too far?
A recent article in the magazine Mother Jones asserts that an official of the Financial Services Institute Inc. drafted a letter that members of the Congressional Black Caucus signed and sent to DOL warning the agency that a flawed rule could close off the investment-advice market for middle-income Americans seeking IRAs.
One of the most aggressive organizations opposing the DOL rule, FSI doesn't exactly deny having a hand in the letter. Chris Paulitz, FSI spokesman, said that the group never comments on its “advocacy process.”
“Since 2010, approximately 200 members of Congress – Democrats and Republicans – have signed similar letters,” Mr. Paulitz added in an email. “These letters express the long-held concerns of the members that their constituents continue to have access to quality, affordable financial advice, as they do today.”
When it comes to the DOL fiduciary-duty rule, FSI, which represents independent brokers and investment advisers, has been unusually blunt. On its website, it urges its members to contact the Congressional Hispanic Caucus and the Congressional Asian American Pacific Caucus.
In Washington, a lobbying organization drafting a letter – or even sections of legislation – and having it rubber stamped by lawmakers is not a scandal. It's business as usual. Lawmakers can't possibly be experts in every subject. They rely on groups with whom they agree – and who often support them with campaign funds – for guidance.
“Letters of that sort are routinely drafted by lobbyists,” said one representative of a financial industry interest group, who asked not to be identified. “It doesn't strike me that [FSI] did anything remotely inappropriate.”
Lobbyists rarely talk on the record about their activities. But both sides play the game. Groups that support fiduciary duty – such as the Consumer Federation of America, the Investment Adviser Association and the Financial Planning Association – are on the field competing against those that are skeptical, such as FSI.
In fact, if each side wasn't encouraging lawmakers to write letters and suggesting legislative language to promote their point of view, they would be doing their members a disservice.