House approves bill to delay DOL fiduciary rule

Measure faces uncertain future in Senate but push is on for support

Oct 30, 2013 @ 7:17 am

By Mark Schoeff Jr.

fiduciary, department of labor, ann wagner, securities and exchange commission
+ Zoom
(Blooomberg News)

The House Tuesday evening approved legislation, 254-166, that would delay — or possibly kill — a Labor Department regulation that would strengthen financial advice standards for retirement plans.

The measure, written by Rep. Ann Wagner, R-Mo., would prohibit the DOL from proposing its regulation until 60 days after the Securities and Exchange Commission finalizes a similar rule to raise standards for brokers providing retail investment advice. The bill attracted the support of 30 Democrats.

On Monday, the Obama administration threatened to veto the legislation, saying that it undermines DOL efforts to protect workers and retirees from conflicted investment advice as they build their nest eggs through 401(k) plans and individual retirement accounts.

Supporters of the bill say the SEC must go first to ensure coordination between the agencies, and avoid duplicative and costly fiduciary-duty requirements that would ultimately limit access to investment advice for smaller investors. Opponents say it would effectively kill the DOL rule if the SEC declines to propose its own regulation.

The legislation, which also would require the SEC to prove that investors are being harmed by the differences between the advice standards governing investment advisers and brokers before it proceeds with its own rule, faces an uncertain future in the Democratic-led Senate.

So far, no similar bill has been offered on that side of Capitol Hill. Ms. Wagner is hopeful that an Aug. 2 letter from 10 Democratic senators to the DOL, urging it to delay the rule, signals that there is momentum for the issue in the upper chamber.

“We are working on some things behind the scenes with the Senate to move this through both chambers of Congress and to the president's desk,” Ms. Wagner said. “We're just in the middle of the game, and I want to see it all the way through.”

The Financial Planning Coalition, comprising the Financial Planning Association, the National Association of Personal Financial Advisors and the Certified Financial Planner Board of Standards Inc., is trying to stop Ms. Wagner's bill.

“This legislation is … a back-door attempt to undermine investor protection provisions in the Dodd-Frank Act and prevent the SEC and DOL from requiring advisers to put investors' interests ahead of their own,” the FPC said in a statement after the House vote.

The DOL fiduciary rule, originally proposed in 2010 and withdrawn amid fierce financial industry backlash, is slated to be proposed again sometime in the next few months. It would expand the definition of “fiduciary” as it is applied to advisers under federal retirement law.

Investment advisers currently must act in the best interests of their clients, or meet a fiduciary duty, while brokers meet a less stringent suitability standard that allows them to sell higher-priced products as long as they meet clients' investment needs.

During the House floor debate Tuesday, Rep. Maxine Waters, D-Calif., opposed the bill, saying that lawmakers should support the DOL rule because it would protect workers' retirement nest eggs from high fees that could come with some broker product recommendations.

“Whose side are we on?” said Ms. Waters, ranking member of the House Financial Services Committee. “Are we on the side of the brokers, who can say any old thing?”

Opponents of the DOL rule contend it would, for the first time, place a fiduciary duty on those providing advice to IRA holders. They argue that would raise costs for brokers, potentially forcing them to abandon the market for investors with modest assets.

“All we're trying to do is preserve investment advice and investment opportunities for working Americans,” said Rep. Jeb Hensarling, R-Texas, chairman of the House Financial Services Committee.

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