Republican lawmakers bashed and Democrats praised a Department of Labor investment advice proposal Thursday at the second congressional hearing on the measure since the beginning of the year.
Democrats asserted the proposal would be “in the best interest” of American workers, while Republicans and industry opponents said it is “a solution in search of a problem.”
It could have a “disastrous impact on the industry,” said Rep. Bob Good, R-Va. and chair of the House Education and Workforce subcommittee that held the hearing.
“The last time the government tried to issue a similar rule, financial institutions were forced to eliminate or limit brokerage advice services as a result,” Good added. “A financial advisor in Virginia put it this way: The more layers of rules and regulations Congress and the White House add, the less likely it is that the average American will get the advice that they need. This rule will give too much latitude to the administrative state to go after anyone in the retirement business and will cause lawsuits to skyrocket.”
Good said the DOL has overstepped its authority on the issue.
“DOL’s expansive rule [is] a blatant power grab seeking to force more types of financial professionals under their control but other regulatory bodies at the federal and state level already exercise oversight over the retirement products and services that DOL is trying to bring within its jurisdiction,” he added.
Rep. Mark DeSaulnier, D-Calif. and ranking member on the subcommittee, countered that an advice rule is needed because the primary DOL regulation, which dates to 1975, is riddled with loopholes, and “bad actors can get away with providing conflicted advice.”
“The Biden administration has proposed a common sense, narrowly defined and not narrowly tailored rule that is aligned with the current DIY retirement savings landscape,” DeSaulnier said at the hearing. “The retirement security rule levels the playing field and will ensure that workers, retirees and retirement plan sponsors receive advice that is in their best interest.”
The DOL rule would also have significant benefits for retirement savers, DeSaulnier added, citing a Morningstar estimate that it would provide savings of more than $55 billion in the first 10 years of the rule and over $130 billion in a subsequent 10 years.
Several witnesses also shared their sentiments about the proposal.
“Proud, strong Americans break down in my office when I explain to them how their investment was lost to conflicted advice, and that their advisor did not owe them a fiduciary duty,” said Joe Peiffer, president of the Public Investors Advocate Bar Association. “I know the devastation that losing your life savings can have on hardworking Americans; this rule will make this better.”
Tom Roberts, principal at Groom Law Group, noted that 42 out of 50 states have already adopted the National Association of Insurance Commissioners' best interest rule, which means “there has been tremendous forward progress in enacting appropriate standards of conduct for investment professionals.” The NAIC “best interest” standard requires that all recommendations by agents and carriers be in the best interest of the consumer and that consideration of the consumer's interest must always be placed ahead of any financial interest that the agent or carrier may have in the transaction.
Rep. Rick Allen, D-Ga., called the DOL proposal a “recycled Obama-era disaster” saying that it would do “more harm than good to the very people who it's claiming to protect and that's American retirees and savers.”
Others noted that with many types of investments to choose from, Americans can be hard-pressed to figure out which products are best for them – and how best to save for retirement. Having an educated advisor who's acting in the best interest of the retiree or worker can help them.
“These are complicated products,” said Rep. Suzanne Bonamici, D-Ore. “The difference between a fixed annuity and a variable … there's just a lot of complication in these products that people who don't have the background need to rely on someone they trust.”
At the end of the hearing, Good urged the DOL to withdraw the rule.
“I don't believe in doing regulation for regulation’s sake, we just want to get at the bad behavior,” DeSaulnier said in his closing statement.
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