Obama threatens to veto bill to delay DOL fiduciary-duty rule for retirement accounts

Bill would prohibit DOL from proposing regulation until 60 days after the SEC has finalized a similar rule

Oct 29, 2013 @ 8:40 am

By Mark Schoeff Jr.

President Barack Obama has threatened to veto a bill that would halt — or possibly kill — a Labor Department regulation designed to strengthen investment advice standards for retirement plans.

The legislation, written by Rep. Ann Wagner, R-Mo., is slated for a House vote today. Debate on the measure will begin around 2:15 p.m. Its passage is virtually assured in the Republican-majority chamber. Its prospects in the Democratic-led Senate are unclear.

The bill would prohibit the DOL from proposing its regulation until 60 days after the Securities and Exchange Commission has finalized a similar rule to raise standards for brokers providing retail investment advice.

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 harm investors. In a letter to lawmakers on Monday, the Financial Planning Coalition said the bill would effectively kill the DOL rule if the SEC declines to propose its own regulation.

The White House said Monday evening that Ms. Wagner’s bill would hinder investor protection efforts.

“The administration is committed to ensuring that American workers and retirees are able to receive advice about how to invest their money in safe, secure and transparent financial products that is free from harmful conflicts of interest,” the Office of Management and Budget said in a policy statement. “These ongoing rule makings are designed to protect trillions of dollars in retirement savings of millions of workers and retirees by ensuring that paid advisers and other entities do not place their own financial interests over those of their customers.”

Originally proposed in 2010 and withdrawn amid fierce financial-industry backlash, the DOL rule is slated for re-propsal sometime in the next few months.

Ms. Wagner and other critics contend that the DOL rule would for the first time place a fiduciary duty on IRAs. They argue that would raise costs for brokers, potentially forcing them to abandon the market for investors with modest assets.

“The bottom line [of the bill] is preserve and increase access to financial advice for all income levels, especially lower- and middle-income investors,” Ms. Wagner said.

She argued that there’s no evidence that the investment advice market is not working under current laws. Investment advisers currently must act in the best interests of their clients, while brokers meet a less stringent suitability standard.

“It is a solution in search of a problem,” Ms. Wagner said. “They haven’t proven systemic harm. There’s a real sense across Congress that there’s an overreach by these agencies.”

Ms. Wagner is mistaken in her assumption that small investors would be harmed if advice standards are strengthened, according to Knut Rostad, president of the Institute for the Fiduciary Standard. He said that if traditional brokers no longer service IRA accounts, they can turn to discount brokers, online advice providers or national investment advisers, such as Edelman Financial Services, that cater to smaller investors.

“This is a bad bill,” Mr. Rostad said. “It’s Washington politics at its worst. This Republican-spearheaded bill presumes that the marketplace is incapable of taking care of small investors.”

The Financial Planning Coalition makes a similar argument.

“Reliable empirical data demonstrate convincingly that a uniform fiduciary rule will not negatively affect middle income American households,” the FPC said in its letter to members of Congress. The group comprises the Financial Planning Association, the National Association of Personal Financial Advisors and the Certified Financial Planning Board of Standards Inc.

Ms. Wagner countered that she and her allies, who include many Democrats, are trying to ensure that investors, such as a single mother with an IRA, have ample options for investment advice.

“She is in a position to make sound investment decisions herself,” Ms. Wagner said. “Adding more regulation via the SEC or Department of Labor is unnecessary.”

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