Democrats rejected on Thursday draft legislation to kill the Labor Department's fiduciary rule and replace it with an investment-advice standard for brokers contained in the measure.
In a two-hour hearing of a House Financial Services subcommittee, Democratic lawmakers defended the DOL regulation, which requires financial advisers to act in the best interests of their clients in retirement accounts.
"I'm disappointed that we're going through this exercise again," said Rep. Carolyn Maloney, D-N.Y. "How many times do these efforts to repeal the fiduciary rule need to fail before my colleagues on the other side of the aisle realize that this is not a productive use of time and that the only realistic way to make changes to the rule is to engage with the Labor Department on reasonable changes that don't harm investors?"
A onetime Democratic skeptic of the DOL rule, Rep. David Scott of Georgia, also came out against the bill, which was presented as a discussion draft at the hearing.
"This bill would be devastating to low-income, middle-income and senior citizens," Mr. Scott said. "This is a very troubling bill."
Mr. Scott said the legislation, which mandates that the Securities and Exchange Commission propose a best-interests standard for brokers, would handcuff the agency.
The bill's author, Rep. Ann Wagner, R-Mo., said it would address what she said are short comings of the DOL rule. It would "apply a workable best-interest standard for broker-dealers when providing investment advice without losing access to advice for millions of low- and middle-income investors," she said.
After the hearing, Ms. Wagner told reporters that she hopes to garner Democratic support for her proposal, which she could introduce as early as this month.
"It's something that we're rolling out in a discussion fashion, and I look forward to working with my colleagues on both sides of the aisle to come to a solution here, because what stands right now does not work," Ms. Wagner said.
The DOL rule was partially implemented last month. How much of the rest of it remains intact is unclear, as it undergoes a review at the directive of President Donald J . Trump that could result in revisions.
Financial industry opponents of the rule and Republicans assert that it is too complex and costly and will force brokers to abandon clients with modest accounts. Supporters of the rule, including most Democrats, say it mitigates conflicts of interest that result in the sales of inappropriate high-fee investment products that erode savings.
The witness table at the hearing was dominated by industry officials who oppose the rule because Republicans chose four of the five participants.
Jerome Lombard, president of the private client group at Janney Montgomery Scott, told lawmakers that the DOL rule, which was finalized in April 2016, has caused brokers to stop selling some mutual funds and to eliminate commission-based products in retirement accounts.
"There's already been disruption," said Mr. Lombard, who was representing the Securities Industry and Financial Markets Association.
David Knoch, president of 1st Global, gave a similar assessment.
"Since 2016, the number of accounts held by our clients directly with mutual fund companies has dropped nearly 10% and the number of new accounts established dropped 19%during the first six months of 2017," said Mr. Knoch, who was representing the Financial Services Institute. "We expect this trend to accelerate, and by the end of this year anticipate that the total number of accounts held in these programs will drop by more than a third."
But Cristina B. Martin Firvida, director of financial security and consumer affairs at AARP, told lawmakers that the DOL rule has the teeth to protect investors while Ms. Wagner's alternative does not.
"This bill does not specify how conflicts should be managed," Ms. Firvida said.
Ms. Wagner's bill has a good chance to make it through the House Financial Services Committee and even the full House, thanks to the Republican majority in the chamber. In the Senate her bill or a similar measure would have to overcome a Democratic filibuster.