Opponents of the Department of Labor's contentious fiduciary proposal in Congress aren't wasting any time.
Less than a week after the department sent its rule outlining stricter requirements for advisors working with retirement plans and investors to the White House for a final review, lawmakers voted to pass two measures that could derail that effort on to the full House for consideration.
The House Committee on Education and the Workforce on Tuesday passed the Affordable Retirement Advice Protection Act and the Strengthening Access to Valuable Education and Retirement Support Act. Those bills, dubbed the ARAP Act and the SAVER Act, would preclude the Labor Department from pushing ahead with its own fiduciary effort without congressional authorization. They instead establish a standard of conduct for advisors that supporters say would be more accommodating to commissions and proprietary products.
Critics of the DoL proposal have charged that it would effectively ban commissions and push advisors into a costlier, fee-only model that would inevitably leave millions of investors without access to retirement advice.
"It creates a convoluted regulatory scheme that will drive up the cost of retirement advice," says John Kline, the Minnesota Republican who chairs the committee. "Men and women will lose access to their trusted financial advisors, providing basic information about retirement planning will be severely restricted, and it will be much harder for small businesses owners to provide retirement plans to their workers."
Kline spoke for many critics of the DoL's fiduciary rule when he argued that it would adversely impact the segment of investors whose retirement security is at the greatest risk.
"This regulatory proposal will hit low- and middle-income families the hardest," he says. "Wealthier Americans can already afford to hire professional advisors who direct and manage their investments on a near-daily basis. Low- and middle-income families cannot. These families have fewer means to invest, and they often just need some help getting started and staying on the right track."
Both bills have a handful of Democratic sponsors, but Tuesday's votes ran along party lines.
Democrats complained that the bills would undermine an important investor protection -- that advisors working in the retirement space should always put their clients' interests ahead of their own.
"These bills permit unscrupulous financial advisors to act in their financial interest, rather than put the best interests of their clients first."
"There are a lot of different financial products that Americans can purchase. Some have extremely high fees, while comparable products -- often even better products -- have lower fees," says Bobby Scott of Virginia, the ranking Democrat on the panel. "The current standard allows for unscrupulous advisors to give conflicted advice and push a financial product from which they will reap bigger products, even if the product is not in the best interest of their client."
The bills would modify the tax code and the 1974 Employee Retirement Income Security Act to affirm that advisors are indeed required to provide investment advice that is in the best interests of their clients, however critics charge that the legislation would still permit egregious conflicts of interest so long as the advisor made a generic disclosure buried in a service agreement.
"These bills permit unscrupulous financial advisors to act in their financial interest, rather than put the best interests of their clients first," Scott says. "These bills enable unscrupulous advisors to use fine print and boilerplate language that nobody understands to disclose and disclaim their way from their fiduciary obligation."
Scott and other Democrats also objected to the process by which the legislation was advanced. Since the Labor Department's rule is under review at the Office of Management and Budget, it is unknown what the final provisions will entail. The DoL held a series of hearings on the proposed rule and collected thousands of pages of comments, and it remains to be seen what tweaks the department will make.
Scott objected that GOP members of the committee were rushing the legislation through by proceeding to a markup without bothering to hold a legislative hearing to consider the bills. He offered a motion to postpone the markup indefinitely, but was voted down.
Of course, critics of the DoL proposal have leveled a similar charge -- that the department, spurred on by the White House, is racing to complete the rule before President Obama leaves office. Some industry opponents had lobbied unsuccessfully to add language to a recent government-funding bill that would have required the Labor Department to delay the rule.
Suzanne Bonamici (D-Ore.) questioned the potential loopholes in the legislation that cleared committee, and offered an amendment calling on the Congressional Budget Office to certify that the legislation would actually require advisors to act in the best interests of their clients.
David Roe (R-Tenn.), the author of the ARAP Act, countered that Bonamici's amendment, which was voted down, would have required the CBO to analyze millions of financial transactions, a task well outside its expertise.
"I wonder if our colleagues would subject the Department of Labor's proposal to same level of scrutiny," Roe says. "I very much doubt that they would."
