In his Oklahoma Senate campaign, Republican Rep. James Lankford said he doesn't hear from voters about raising investment advice standards for brokers.
But he wants to protect constituents from what he calls a harmful potential SEC rule that would impose a uniform fiduciary duty for retail investment advice — a move that would force brokers to legally act in the best interests of their clients.
“This is an issue that's extremely important to Main Street people,” Mr. Lankford said.
He argues that investment advisers aren't interested in helping investors who don't have much net worth. He uses his own life as an example of how brokers reach down farther on the wealth ladder.
“That's who helped us get started when we were a newlywed family with very little money,” Mr. Lankford said, referring to him and his wife. “That option needs to be available to other American families.”
Mr. Lankford is trying to stop the Securities and Exchange Commission from “creating a regulatory scheme that discourages middle- and lower-income Americans from investing” by foisting higher regulatory and liability costs on brokers and driving them out of the advice market for those with modest assets.
“If there are fewer people offering products to [investors], they're losing the encouragement and opportunity to invest,” Mr. Lankford said.
An amendment offered by Mr. Lankford to a spending bill approved by the House last week would bar the SEC from allocating any of its budget to developing or adopting a fiduciary-duty rule. The Dodd-Frank financial reform law gives the SEC the authority to advance the regulation.
Investment advisers already must meet the best-interest standard when working with clients. Brokers meet a less-stringent suitability standard when selling products. Fiduciary advocates expressed disappointment in Mr. Lankford's amendment.
“It shows me that the opponents of the fiduciary duty — the brokerage and insurance industries — continue to work hard in the House to make sure nothing happens,” said David Tittsworth, executive director of the Investment Adviser Association. “I don't think that's good for investors.”
Mr. Lankford, who currently represents a House district that includes Oklahoma City, has raised $2.1 million for his Senate race as of early June, according to the Center for Responsive Politics. He has received $37,400 from the insurance sector and $14,800 from the securities and investment sector.
He denies that his fiduciary-duty amendment was a response to his donors' wishes.
In fact, the major brokerage trade association, the Securities Industry and Financial Markets Association, has long supported a fiduciary standard for retail investment advice. But the organization has recommended that the SEC create a new fiduciary framework that encompasses both brokers and advisers rather than extend advisers’ current fiduciary duty to brokers. It opposes a pending Department of Labor fiduciary duty rule that would apply to retirement accounts.
The fate of Mr. Lankford's amendment is unclear. Unlike the Republican-led House, the Democratic-majority Senate won't likely be interested in a measure that re-opens the Dodd-Frank law.
“The Senate has shown great reticence in fiddling with Dodd-Frank,” said Duane Thompson, a senior policy analyst at Fi360, a fiduciary-duty training firm. “It doesn't look good for Mr. Lankford's amendment.”
The other problem is that a Senate dispute between Democrats and Republicans over the amendment process could prevent the chamber from passing its own appropriations bills.
In that case, Congress may have to settle for a continuing resolution this fall that keeps government agencies running at their current funding levels. Such a measure has been used for the past several years when the House and Senate remained at loggerheads at the end of the government fiscal year on Sept. 30.
Later, the House and Senate may agree to an omnibus appropriations bill, as they did earlier this year.
Either way, Mr. Tittsworth said prospects are dim for Mr. Lankford's amendment.
“I can't see that this is going to be accepted in whatever final bill comes forward,” Mr. Tittsworth said.
Mr. Lankford remains optimistic. He said the House is on the record supporting his amendment, giving it more leverage in spending negotiations with a Senate that has no appropriations bills.