House members challenge DOL fiduciary efforts

The House Committee on Education and the Workforce “has strong reservations” about the Department of Labor’s efforts to require retirement advisers to follow a fiduciary standard, saying it could reduce access to retirement savings options and conflicts with the Dodd-Frank Act.

The DOL on Feb. 23 forwarded its new fiduciary rule proposal to the Office of Management and Budget for review. President Barack Obama threw his support behind the proposal, saying in a White House Fact Sheet it would “require retirement advisers to put their clients’ best interest before their own profits.”

See related: Brokers condemn Obama ‘attack’ on retirement advisers

In a March 4 letter to DOL Secretary Thomas Perez, Rep. John Kline, (R-Minn.), chairman of the Committee on Education and the Workforce, raises concerns about the DOL’s efforts, saying it could increase costs for middle-income Americans and conflicts with Securities and Exchange Commission rulemakings under the Dodd-Frank Act.

Therefore, coordination between the SEC and DOL is “vital” to ensure a functioning regulatory framework, Kline says, and requests the Secretary send Congress “documents and communications demonstrating the coordination between DOL and SEC regarding DOL’s ongoing project to expand fiduciary liability.”

SEC Commissioner Daniel Gallagher in February raised several concerns about the DOL’s fiduciary proposal. “Like Commissioner Gallagher,” Kline and the letter’s co-signer Phil Roe (R-Tenn.) chairman of the Subcommittee on Health, Employment, Labor and Pensions say, “We believe ‘investors benefit from choice; choice of products, and choice in advice providers.’ We share his concern that ‘one size fits all regulation, in practice, tends to end up as one size fits none. And when all is said and done, it means investors are presented with fewer choices and higher prices.’”

The House members are also concerned DOL could establish “conflicting and confusing regulatory morass harming retirement savers.”

For example, the letter says, section 913 of the Dodd-Frank Act directed the SEC to study the standard of care for investment advisers and broker-dealers, and it authorized SEC to promulgate rules based on these results.

“Policymakers have consistently warned DOL’s approach could conflict with SEC’s rulemaking…resulting in uncertainty, higher costs, and less financial information for investors,” the letter adds.

See also: SCOTUS questions fiduciary duty to monitor retirement plan investments

“People should be protected from unfair and deceptive practices,” says Brian Graff, executive director of the National Association of Plan Advisors, “but all indications are that this rule will block Americans from working with the financial advisers and investment providers they trust simply because they offer different financial products — like annuities and mutual funds — with different fees. This rule could even restrict who can help you with your 401(k) rollover.”

If the administration moves forward with this proposed rule, Graff says, “American savers will be forced to pay out-of-pocket for their financial advice, or be limited to financial products with identical fees. Tens of millions of American savers who cannot afford to pay out-of-pocket will lose access to their financial adviser or be severely restricted in their choice of financial products. This is a wolf in sheep’s clothing. This so-called ‘conflict-of-interest’ rule is really the ‘no advice’ rule.”

The House Committee letter argues a notice of proposed rulemaking should not be issued until after Congress is satisfied sufficient coordination between the SEC and DOL has occurred and gives Perez until March 18 to produce documentation that the coordination has taken place.