Key lawmaker sees disclosure as most important part of investment-advice standard

Rep. Bill Huizenga, R-Mich., acknowledges that clients are sometimes harmed by their financial advisers, but he doubts that conflicted advice is rampant.

“I don’t believe that there’s a systemic and widespread issue,” Mr. Huizenga said in a recent InvestmentNews interview. “Are there problems? Absolutely. We know that. We have problems because people are willing to break the law — whether it’s a speed limit, whether it’s selling investments or whether it’s on nuclear treaties.”

Mr. Huizenga’s opinion about investment advice is an important one on Capitol Hill because he chairs the House Financial Services Subcommittee on Capital Markets, Securities and Investments. The House panel has jurisdiction over the Securities and Exchange Commission and legislation affecting retail investment advisers and brokers.

That puts Mr. Huizenga, 49, in a position potentially to influence the outcome of an SEC fiduciary rule, which the agency is likely to propose in the next couple months.

Although his subcommittee doesn’t oversee the Labor Department, Mr. Huizenga opposes the Labor Department’s fiduciary rule and wants the SEC to take the lead on the issue. His preference is for an SEC regulation that focuses on disclosures about the advice standards that investment advisers and brokers must meet.

“I do believe that sunshine in these relationships is important,” he said, “just making sure people know and understand where the interests lie exactly.”

A former real estate broker, Mr. Huizenga used the example of trying to sell a house to a client who can’t afford it. The transaction would produce a big commission for him as the broker, but the client might end up losing the home and trashing Mr. Huizenga in the community.

Investment advisers and brokers also try to avoid bad word of mouth.

“It’s about service and it’s about treating your customer properly and disclosing that,” Mr. Huizenga said. “If you don’t service your customer, they walk away. That is the pressure of the marketplace disciplining you on top of the rules and regulations that are properly in place to protect investors.”

Mr. Huizenga’s portrayal of the advice business puts him at odds with investor advocates who say that the DOL fiduciary rule goes beyond disclosure to mitigate broker conflicts of interest that are built into the financial system. They want the SEC rule also to be tough on rooting out conflicts rather than on disclosing them.

But according to Mr. Huizenga, fiduciary advocates go too far in claiming that conflicts of interest crop up often in adviser-client relationships and result in billions of dollars in investor harm annually.

“They portray it that every single provider of this service out there is somehow trying to rip off their customers,” he said. “[They] see conflicts at every turn. What I’m confused about is how they believe that people will be serviced without others earning a living off of this. They want to drive any sort of profit or remuneration out of the process.”

Mr. Huizenga, whose brother was formerly a financial adviser, said that product fee differences are modest.

“We are talking about tens of dollars here,” he said. “That’s not tens of hundreds, not tens of thousands.”

Although Mr. Huizenga’s Republican colleagues have introduced legislation to kill the DOL rule and shape the SEC regulation, the ball is in the regulators’ court.

“There’s been a shift in the pressure point,” he said. “You now have a DOL that has been checked. You’ve got an SEC that is interested in solving this in a way that actually works.”

FINRA OVERSIGHT

In addition to the SEC, Mr. Huizenga has been keeping an eye on the brokerage industry self-regulator, the Financial Industry Regulatory Authority Inc. His subcommittee held a Finra oversight hearing last September.

He said he has heard from Finra critics who assert that the organization is opaque and acts more like a government agency than a self-regulator.

But Mr. Huizenga credits Finra president and chief executive Robert W. Cook for launching the Finra 360 self-examination initiative and says he is hesitant to prescribe more congressional oversight.

“I’m not saying ‘no,’ but I would need to dig into it a little more to find out what are the fixes that need to happen to Finra and what can happen within the industry versus what needs to be mandated by Congress,” Mr. Huizenga said. “I tend to default to saying, ‘Let’s let the industry work this out.’”

CAMPAIGN SUPPORT FROM INDUSTRY

Like many lawmakers on the House Financial Services Committee, Mr. Huizenga has received the most campaign donations for this election cycle from the financial and insurance industries. He said those contributions don’t affect his policy stances.

“I do what I believe is the right thing to do,” he said. “I come from a reasonably safe district that allows me and expects me to be independent and think for myself.”

COMMITTEE CHAIRMANSHIP

If Republicans hold the House in the fall election, Mr. Huizenga, who represents a swath of western Michigan along the east coast of Lake Michigan, said that he will be a candidate to replace House Financial Services Committee Chairman Jeb Hensarling, R-Texas, who is retiring in 2019.

Mr. Huizenga said that he is someone who can “listen, engage and work with people who I disagree with. That’s a very valuable thing to have in this town.”

Related Topics: Financial Industry Regulatory Authority, Securities and Exchange Commission