A legislative alternative to the Department of Labor’s controversial fiduciary only rule won favor Thursday at a House subcommittee hearing.
Rep. Ann Wagner, R-Mo., is re-introducing her bill, called the Retail Investor Protection Act. It would prohibit the SEC from issuing a uniform standard of conduct without first showing that harm would come to retail investors without it.
Members of the subcommittee sought to frame the DOL rule as an overreach by the Obama administration. A news release from the Financial Services Committee compared the effort to the administration taking over retirement planning “just as Obamacare put Washington in control of your health care.”
“This … is yet another attempt by the administration to perpetuate a 'government-knows-best' regime,” said Rep. Sean Duffy, R-Wis., who ran the hearing. “Americans should be able to make the investment choice that is right for them.”
The Wagner bill would also block the DOL from acting on a standard of care until the SEC issued its final ruling on standards governing the conduct of brokers.
Wagner is also a member of the Subcommittee on Capital Markets and Government Sponsored Enterprises, which hosted the hearing with the Subcommittee on Oversight and Investigations.
The committees were dominated by Republicans eager to see the DOL fiduciary rule disappear. Wagner led the charge against the Obama administration, which wants to pass the rule before the president leaves office in January 2017.
“I am absolutely disgusted at the fact that we have an administration that has villainized and disparaged an entire industry and even in public forums called them snake oil salesmen,” Wagner said.
The hearing included several criticisms of the DOL proposal, among them:
- It will be particularly harmful to small savers in the African-American community.
- DOL research is faulty and the rule is being rushed.
- Robo-advisors will not be able to replace financial advisors and broker-dealers.
The committee included four representatives from the financial industry, and Mercer Bullard, law professor at the University of Mississippi School of Law. He was the lone supporter of the rule.
Wagner introduced her bill during the last Congress as well. She called it a responsible step to preserve access to financial advice while permitting sensible regulation.
“Washington needs to be empowering Americans to save for retirement,” she said. “I look forward to working with more members across the aisle.”
Bullard countered by slamming the SEC’s record on rulemaking.
“This subcommittee knows better than anyone the SEC on these types of issues appears to be incapable of doing rulemaking,” he said.
Rep. David Scott, D-Ga., is one of a handful of Democrats who broke with the administration on the fiduciary issue. He doubted that African-American savers will be best served by the DOL’s vision of retirement planning.
He was among members who took issue with the DOL’s Best Interest Contract exemption, which would allow retirement plan brokers and advisers to continue to set their own compensation practices.
However, they must commit to putting their client’s best interests first and reveal any conflicts that may prevent them from doing that. Under the DOL’s proposed rule, the BIC would be signed by clients upfront.
“It will frighten the very consumers you are trying to reach of low and moderate income,” Scott said. “I would even run away from that because those things have a devastating impact, especially in the African-American community.”
About 20 million Americans have $20,000 or less saved for retirement, said panelist Paul Schott Stevens, president and CEO of the Investment Company Institute.
The DOL used vague and unsupported research to conclude the bad financial advice is costing retirement savers $17 billion annually, Wagner said.
Echoing the findings of a study performed by Jack Marrion, CEO of the consulting firm Advantage Compendium, Wagner noted the DOL conclusions rely on studies that can’t be found.
“It’s beyond fuzzy math is all I can say,” she said. “I have said over and over again, it’s a solution in search of a problem.”
The ICI performed a series of tests of fund sales, fees and performance since 2007 to counter the DOL’s $17 billion figure. Stevens said nobody from the DOL, or its supporters, have disproved the conclusions.
“They predicated the whole thing on studies that are out of date,” Stevens added.
Robo a no go
Several speakers noted the tight timeframe the DOL is working under, with the department proposing an eight-month implementation phase.
Bullard suggested that “innovation” in the marketplace will help small savers in need of retirement planning. Committee members took that comment to mean robo advisors.
“Is robo advice going to work for the less tech savvy, for the elderly, and for people who are less likely to save?” asked Rep. Brad Sherman, D-Calif.
“No it is not,” said Caleb Callahan, senior vice president and chief marketing officer of ValMark Securities. “The robot is not going to feel the emotional side that drives behavior.”
Even if robo advisors could fill the void, it will take much longer than eight months, Stevens added.
With the recent stock market fluctuations, Duffy asked Juli McNeely, president of NAIFA, what the response has been from retirement savers.
“By chance did you get more calls over the last month than you have in previous months,” Duffy asked McNeeley, vice president/treasurer of McNeely Financial Services in Spencer, Wis.
“Yes. We calm them down and we talk them through it. I actually call it telling them not to jump off a bridge,” she said, adding that if the rule passes, “it will likely me preclude me from working with them.”
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected].
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