House Democrats seek changes to DOL fiduciary rule

A group of House Democrats is seeking changes to a Labor Department proposal that would raise investment advice standards for retirement accounts.
Rep. Gwen Moore, D-Wis., and eight other Democrats are circulating a letter among their caucus colleagues that calls on the DOL to fix problems they cite with exemptions for compensation practices and investor education, among other parts of the measure.
“We continue to hear from constituent, academics, providers and investors that there are specific provisions of the rule that may cause market disruptions and limit the ability of segments of the market to reasonably access advice,” the letter states.
In addition to Ms. Moore, other initial signatories are Reps. Tony Cardenas (Calif.), Emanuel Cleaver (Mo.), Ann McLane Kuster (N.H.), John Larson (Conn.), Grace Meng (N.Y.), Richard Neal (Mass.), Ron Kind (Wis.) and Kyrsten Sinema (Ariz.).
Like recent letters from Senate Democrats, the document does not demand that DOL withdraw a rule. A House letter asking for withdrawal only drew two Democratic signatures.
The rule, introduced in April, is designed to reduce conflicts of interest for brokers working with 401(k) and individual retirement accounts. The Obama administration wants to curb sales incentives that encourage financial advisers to put clients into inappropriate high-fee products that erode savings.
INCREASED LIABILITY
Critics of the rule, including several Republican lawmakers and some financial industry trade groups, say that it would significantly increase liability risk and regulatory costs for brokers and make giving and receiving investment advice much more expensive.
The DOL has opened a second comment period on the rule, which will conclude on Sept. 24. The agency is expected to release a final rule early next year.
Rather than scuttle the proposal, the latest Democratic letter is friendly fire that serves as a road map for changes DOL may make.
For instance, the letter cites “practical problems” with a legally binding contract — the best- interests contract exemption — included in the rule that would allow brokers compensation flexibility as long as they act as fiduciaries for their clients.
“We believe the department could accomplish the goals of the BIC using a less prescriptive and more principle-based approach to implementation,” the House Democrats wrote.
The lawmakers also said the rule should permit specific investment examples in investor-education materials, should not discriminate against annuities and should allow safe harbors for good-faith implementation.
“They are arguing for the kind of refinements to the rule that DOL has already indicated it is open to making,” Barbara Roper, director of investor protection at the Consumer Federation of America, wrote in an email.
There was little evidence at a House hearing last week that Democrats will join Republicans on a bill that would halt the DOL rule.
It’s unclear whether that measure will find support among Senate Republicans.
“Republicans are considering all options,” said a GOP aide on the Senate Health Education Labor and Pensions Committee.
At least one Senate Democrat is optimistic that Labor Secretary Thomas Perez is listening to criticism of the rule and will produce an acceptable regulation.
“In my meetings with him, he has heard the validity of some of the concerns,” Sen. Mark Warner, D-Va., told reporters on Tuesday.