Two days after President Barack Obama gave substantial momentum to a pending Department of Labor rule that would raise investment advice standards for retirement accounts, a House lawmaker is trying to stop the regulation.
On Wednesday, Rep. Ann Wagner, R-Mo., introduced a bill that would force the DOL to wait until after the Securities and Exchange Commission has acted on a similar fiduciary rule it is considering for retail investment advice. The SEC has circled such a regulation for years and is not close to making a proposal.
In an interview, Ms. Wagner said she moved up the introduction of her bill to respond to Mr. Obama, who spoke at AARP on Monday supporting DOL's efforts, and Sen. Elizabeth Warren, D-Mass., who appeared at the event to endorse the proposal.
“They seem to be doubling down on another massive rule-making that is going to harm thousands of low- and middle-income American families,” said Ms. Wagner, a member of the House Financial Services Committee. “Once again, I find [Ms.] Warren and the White House offering a solution in search of a problem, and we're going to push back on behalf of Americans trying to invest their hard-earned money and save for their families.”
Ms. Wagner's bill also would set out cost-benefit requirements for the SEC to meet on its own rule-making.
The Financial Planning Coalition warned that the bill would hamstring the SEC by forcing it to “consider less adequate and less effective alternatives” than a uniform fiduciary standard for retail investment advice and would slow or prohibit the DOL from proceeding with its rule.
“This cynical attempt to undermine these critical investor protection efforts should be opposed,” the group said in a statement. The FPC is comprised of the Certified Financial Planner Board of Standards Inc., the Financial Planning Association and the National Association of Personal Financial Advisors.
On Monday, Mr. Obama directed DOL to move ahead with a rule that would extend the definition of “fiduciary” to more advisers of 401(k) and individual retirement accounts, requiring them to give advice that is in the best interests of their clients.
The rule aims to protect workers and retirees from investment losses due to conflicted advice as they build their retirement nest eggs. The financial industry has strongly opposed the rule, arguing that it would sharply raise regulatory and liability costs for brokers and force them to drop clients with modest investible assets.
Ms. Warren has galvanized Capitol Hill Democrats against legislation that she says will benefit Wall Street at the cost of ordinary investors. She recently took up the cause of fiduciary duty for investment advice, which would set a higher bar than the current suitability standard for brokers.
At the AARP event, Ms. Warren said the DOL rule would target financial advisers who give advice based on kickbacks and other incentives that benefit them but put their clients in high-priced and poor-performing products.
“Today, we begin to fix a broken system,” Ms. Warren said. “Today, we stand up for millions of people who are trying to set aside money for a decent retirement.”
A similar version of Ms. Wagner's bill was introduced in the previous Congress and passed in the House on Oct. 29, 2013, by 254-166, with 30 Democrats voting in favor. But it died in the Senate, which was controlled by Democrats at the time.
This time around, Ms. Wagner said there will be a “real grass-roots” effort to line up Democratic support.
“There are a lot of good, common sense Democrats who, over the next 90 days, as we wait for the rule, will be activated,” Ms. Wagner said.
The bill is likely to be the subject of a House hearing after the DOL rule is released publicly. The rule is currently under review by the Office of Management and Budget.
Ms. Wagner predicted that Mr. Obama will run into the same problem on this issue that he faced when he reversed course on a proposal to change the tax benefits of 529 college savings plans.
“He touched that hot stove and retreated,” Ms. Wagner said. “He should retreat on this issue as well.”