Legislators eye strategies that could derail DOL fiduciary rule

Congress will be horse-trading in backrooms of the Capitol this week in an effort to avoid a government shutdown, and legislation that would replace a pending Labor Department rule to raise investment advice standards for retirement accounts could become part of those negotiations.

“Ironically, the efforts by some members of Congress jettison the transparency and inclusiveness they correctly demanded, instead favoring a process of closed-door deliberations dominated by lobbyists and industry insiders,” a DOL spokesman said in a statement. “As a result, we should expect a product that is ultimately less protective of middle-class retirement savers.”

Last month, four bipartisan House members released “legislative principles” that would form the foundation for a bill they say would ensure financial advisers act in the best interests of their clients. The measure would effectively dictate parameters for the DOL rule, killing the proposal the agency made earlier this year.

DECIDING ON BEST MOVE FORWARD

Such a bill could drop within days, according to Rep. Phil Roe, R-Tenn., one of the legislators working on it.

“We’d have to decide what’s the best way to move it forward,” Mr. Roe said in an interview last Wednesday, after he led a House Education and Workforce subcommittee hearing on the DOL rule.

One approach would be to include it in the so-called omnibus government funding bill that Congress must approve by Friday to keep the government open.

“It probably will not be standalone [legislation],” Mr. Roe said. “We may not be able to get it done [by itself]. That leaves the omnibus as the only other option — or defunding [the DOL rule] in the appropriations bill.”

Democrats probably will resist a rider to the appropriations bill that would deny funds to the DOL to implement the rule. It’s less clear whether they would acquiesce to language in the omnibus legislation that would require the Labor Department to change or re-propose the regulation.

A re-proposal process likely would cause the clock to run out on the rule because the Obama administration would not be able to finalize it before leaving office. The financial industry is pushing Congress to demand a re-proposal.

“The rule needs further review before going to a final stage,” Kenneth E. Bentsen Jr., president and chief executive of the Securities Industry and Financial Markets Association, said at an event last Thursday. “Congress has a role to play here, since they are the ones that oversee the statute itself.”

The highest-ranking Democrat on the subcommittee, Rep. Jared Polis, D-Colo., and 46 other House Democrats wrote an Oct. 30 letter to DOL asking the agency to implement a 15-30 day comment period after a revised rule is released and before it goes final. That move could potentially prevent the DOL from finishing the rule.

SPLIT THE DIFFERENCE

At the hearing, Mr. Polis appeared to split the difference between DOL backers and industry opponents.

“I’m optimistic they will make the changes necessary to create a good rule,” Mr. Polis said. “Oftentimes, a second comment period can be helpful.”

The DOL last Wednesday urged Congress to reject any attempts to stop its rule, which would require financial advisers to offer advice to 401(k) and individual retirement accounts that’s in the best interests of the clients. The agency asserted that it has conducted an extensive comment process and would modify the rule to address concerns raised by critics.

The Obama administration argues that the rule would shield workers and retirees from conflicted advice that raises their investing costs and erodes savings. Opponents of the rule say it foists significant litigation risk and regulatory costs on brokers and would make advice more expensive.

“I’d rather see Congress take the opportunity in the omnibus to express its concerns rather than rush headlong into a final rule that we haven’t seen,” Bradford Campbell, counsel at Drinker Biddle & Reath and a former DOL official in the George W. Bush administration, said in an interview following his testimony at last Wednesday’s hearing.

But a DOL rule advocate said Congress should stay out of the regulatory process.

“Refrain from legislating … and allow [the DOL] to promulgate its long-overdue rule,” Marilyn Morhman-Gillis, managing director of public policy and communications at the Certified Financial Planner Board of Standards Inc., told lawmakers.