Key lawmakers urge OMB to wait for SEC to act on fiduciary standard

Sen. Boozman and Rep. Crenshaw say Labor Department's rule will significantly hurt lower-income clients

Mar 4, 2015 @ 12:51 pm

By Mark Schoeff Jr.

+ Zoom

Two Republican lawmakers who help control the federal purse strings have joined the effort on Capitol Hill to delay and possibly kill a Department of Labor proposal that would raise investment-advice standards for brokers who handle retirement accounts.

Sen. John Boozman, R-Ark., and Rep. Ander Crenshaw, R-Fla., told the Obama administration in a letter Tuesday that the DOL should not act on its rule until the Securities and Exchange Commission releases its proposal.

Last week, President Barack Obama directed the DOL to move ahead with its proposal , which would extend the definition of fiduciary to more financial advisers to 401(k) and individual retirement accounts, requiring them to act in the best interests of their clients.

The DOL proposal was sent to the Office of Management and Budget for review Feb. 25.

The SEC was given authority under the 2010 Dodd-Frank financial reform law to promulgate a rule that would establish a uniform fiduciary duty for retail investment advice, but it has not made much progress.

“We believe the cumulative effects of the SEC and DOL rulemakings will lead to inconsistent and overlapping regulatory requirements that increase investor costs and reduce access to investment advice,” Mr. Boozman and Mr. Crenshaw wrote in a letter to OMB Director Shaun Donovan. “For that reason, we believe the SEC should move first in any rulemaking in order to address issues of investor harm and confusion surrounding different standards of care.”

Mr. Boozman is chairman of the Senate Appropriations Subcommittee on Financial Services and General Government. Mr. Crenshaw is chairman of the House Appropriations Subcommittee on Financial Services and General Government.

Supporters of the DOL rule say waiting for the SEC to act could effectively kill the DOL effort, as the SEC might never move on its own rule.

After the OMB review, which could take up to 90 days, the DOL rule will be released for public comment. The appropriators said DOL must allow at least 90 days for input.

Their letter was released by the Financial Services Institute, a leading opponent of the DOL fiduciary proposal. The institute also wants to slow the rulemaking process.

“Research shows that the average OMB review for rules promulgated by the Department of Labor is 117 days — for rules far less controversial,” Robert Lewis, FSI's vice president for legislative affairs, said in a statement. “Anything shorter than that could raise serious questions about the review process.”

The Financial Planning Coalition criticized efforts by the lawmakers and FSI to get OMB and the Labor Department to slow-walk the proposal.

“We continue to urge the OMB to thoroughly and swiftly review the DOL's proposed fiduciary rule and to resist any attempts by policymakers and industry participants to halt or delay this process based on mere presumptions about a yet-to-be-released rule,” the coalition said in a statement. “Premature attempts to keep the DOL's proposed update of a 40-year-old rule from being subject to public review and comment should be opposed.”

The coalition is comprised of the Certified Financial Planner Board of Standards Inc., the Financial Planning Association and the National Association of Personal Financial Advisors.

Mr. Boozman and Mr. Crenshaw's letter echoes concerns addressed in legislation that Rep. Ann Wagner, R-Mo., introduced last week.

The DOL rule was originally proposed in 2010 but withdrawn the next year after fierce opposition from the financial industry, which argued that it would significantly raise regulatory and liability costs for brokers and force them to drop clients with modest assets.

The department maintains that the rule is needed to protect workers and retirees from conflicted investment advice as they build their retirement nest eggs. Brokers currently must meet a suitability standard for advice that allows them to sell high-priced products as long as they fit an investor's need.

The appropriators promoted the industry argument.

“We strongly believe the DOL rule will significantly harm low- and middle-income investors seeking financial advice regarding their retirement and will cause unintended consequences to many American's IRA accounts by limiting access of investment advice provided to many smaller accounts,” Mr. Boozman and Mr. Crenshaw wrote.

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

B-D Data Center

Use InvestmentNews' B-D Data Center to find exclusive information and intelligence about the independent broker-dealer industry.

Rank Broker-dealers by

Upcoming Event

Sep 26

Webcast

Investing 2017: Industry at a Crossroads

The advice industry is at a unique inflection point, as the way clients are investing has changed dramatically: Technology has evolved, access to innovative products has changed, and the active vs. passive debate continues to rage on. Advisers... Learn more

Featured video

Events

Fireside chat with new firms at Fuse

Fuse continues to attract new fintech firms to the event every year. Hear directly from the newcomers of Asset-Map and Quik! as to why they chose to attend.

Video Spotlight

Are Your Clients Prepared For Market Downturns?

Sponsored by Prudential

Recommended Video

Path to growth

Latest news & opinion

Jerry Schlichter's fee lawsuits have left an indelible mark on the 401(k) industry

After a decade of litigation, fees are lower and retirement plans are more transparent. But have the lawsuits gone too far?

10 best financial adviser jokes

How many financial advisers does it take to screw in a lightbulb?

Hackers may have profited from SEC breach

The hack of the agency's Edgar filing system occurred in 2016, but the regulator didn't conclude until last month that the cybercriminals may have used their bounty to make illicit trades.

Top 10 financial firms ranked by investor satisfaction

Find out which firm took the top slot for overall investor satisfaction for the second year in a row.

What not to say to clients when the markets drop

Here's what advisers should steer clear of saying the next time stocks turn downward.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print