DOL fiduciary rule opponents, lawmakers call for further delay at House hearing

Opponents cite new evidence of harm to small account holders

May 18, 2017 @ 2:05 pm

By Mark Schoeff Jr.

Republican lawmakers and opponents of the Labor Department's fiduciary rule on Thursday called for an extended delay of its implementation deadline, citing what some call new evidence of its harm to investors.

Most witnesses before the House Education and Workforce Subcommittee on Health, Employment, Labor and Pensions said that the regulation, whose applicability date has already been pushed back to June 9 from April 10, should be suspended further while the department conducts a review directed by President Donald J. Trump that could lead to its modification or repeal.

"The new empirical evidence based on actual experience shows that the academic predictions dismissing the rule's harmful effects, such as reduced access to advice and assistance, were wrong," Bradford Campbell, a partner at Drinker Biddle & Reath and a hearing witness told lawmakers. "The fiduciary rule should be delayed until a complete review of this new, compelling evidence is complete."

Mr. Campbell cited an Investment Company Institute survey of its fund-firm members that showed that financial advisers are abandoning smaller accounts.

But Micah Hauptman, financial services counsel at the Consumer Federation of America, questioned the ICI's results.

"ICI as well as other industry opponents provide claims about what the rule is doing with no factual basis to support those claims," said Mr. Hauptman,

The DOL has been silent about extending the delay.

The chairman of the House subcommittee, Rep. Tim Walberg, R-Mich., said he met with Labor Secretary Alexander Acosta one-and-a-half weeks ago.

"This is firmly on their radar. They've considered it," Mr. Walberg said in an interview after the hearing. "There was no indication of a time certain. There's no indication to me that they were going to delay it beyond [June 9]. But I'm hopeful that the fact that they've done significant work [will mean] that we will get a delay."

It could be getting late for the agency to act, if it intends to go through a rulemaking process for the extension that includes a notice and comment period.

Mr. Campbell said in an interview afterwards that the DOL does not have to go through a new rulemaking.

"They could justify an interim final rule based on the new information that has come to light" about the potential for the rule to make advice too expensive for investors with modest assets, said Mr. Campbell, the head of the DOL Employee Benefits Security Administration during the George W. Bush administration.

A top industry lobbyist, Kent Mason, a partner at Davis & Harman, also was confident.

"They could go straight to a final delay," Mr. Mason said after the hearing. "There is no legal question."

Supporters of the rule, which requires financial advisers to act in the best interests of their clients in retirement accounts, said that they will fight back if they feel the agency is cutting corners.

"If the DOL delays the rule further, in violation of the Administrative Procedure Act, they should expect to get sued," said Mr. Hauptman.

The reason opponents are pushing so hard to add to the delay is because the DOL has said that as of June 9, two provisions will go into effect. One expands the definition of who is a fiduciary to retirement plans and another sets impartial conduct standards. They say that the entire rule should be put on hold during the review, which the agency said will take until the end of the year.

In his testimony, Jason Furman, former director of the Obama administration's Council of Economic Advisers, said that the rule is protecting small investors from conflicted advice that erodes their savings.

"The costs [of the rule] are largely borne by parts of the financial industry that were benefitting at the expense of middle class households and [the] benefits go to middle-class households," Mr. Furman said.

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