After a tough week for Donald Trump, House Republicans continue to forge
ahead with new legislation aimed at easing restrictions on Wall Street
in hopes of growing the economy. After passing the CHOICE Act on June
8 as a replacement for Dodd-Frank, Republicans immediately went to work
on eliminating more regulatory rules by introducing a bill intended to
overturn the Department of Labor’s (“DOL”) fiduciary
rule implemented under the Obama administration, which went into effect
on June 9.
The fiduciary rule expands the “investment advice fiduciary”
definition under the Employee Retirement Income Security Act of 1974 (ERISA)
by elevating all financial professionals who work with retirement plans
or provide retirement planning advice to the level of a fiduciary. Republicans
have argued that the fiduciary rule would jeopardize access to affordable
retirement service. In an effort to overturn the fiduciary rule, Rep.
Peter Roskam (R-IL), chairman of the Ways and Means Subcommittee on Tax
Policy, and Rep. Phil Roe (R-TN), a member of the House Committee on Education
and Workforce, introduced the Affordable Retirement Advice for Savers
Act (H.R. 2823). According to the Republican party, this bill would protect
access to “affordable retirement advice” by overturning the
DOL’s fiduciary rule which certain lawmakers and financial industry
insiders consider a flawed rule that will make it more expensive for small
investors to save for retirement.
Rep. Roe stated that the fiduciary rule makes it harder for low and middle-income
families to save for retirement, saying, “The Obama administration
made a reckless, unnecessary trade-off between strong protections for
retirement savers and access to affordable retirement advice. This legislation
reflects a more responsible solution that will ensure all Americans have
access to affordable retirement advice that’s in their best interest.”
Rep. Roskam added, “This bill encourages more people to save and
helps ensure advisors always serve the best interests of their clients.”
Roskman also claims that the bill will assist small business owners by
making it easier and more affordable for them to enlist expert retirement advice.
The lawmakers stated that the bill would overturn the DOL fiduciary rule
while ensuring that financial advisors represent the best interests of
their clients. They both claimed the law provides “transparency
and accountability through clear, simple and relevant disclosure requirements.”
Back in early May, Roe and other lawmakers sent a letter to Labor Secretary
R. Alexander Acosta to ask for a permanent delay in the implementation
of the fiduciary rule pending approval of this new bill. However, despite
earlier delays, the new fiduciary rule went into effect on Friday. Sec.
Acosta indicated that the rule would finally take effect, but would not
rule out a further review.
Advisors are not clear how the rule will be enforced, with the DOL issuing
a statement that said, “During the phased implementation period
... the department will not pursue claims against fiduciaries who are
working diligently and in good faith to comply with the fiduciary duty
rule and exemptions, or treat those fiduciaries as being in violation
of the fiduciary duty rule and exemptions.”
Financial industry executives reacted to the rule implementation differently,
with some taking a pragmatic approach and others wondering why we need
the rule when most financial advisors are already acting as a fiduciary
for their clients.
While the fiduciary rule requires financial advisors act in the best interest
of their clients, many investment insiders say the rule goes too far in
directing what investments certain clients can participate in based on
commissions, and creates ambiguity in how the rule is applied.
Dale Brown, president, and CEO of the Financial Services Institute stated,
“While we are disappointed in this latest development, we agree
with the guiding principles Secretary Acosta outlined… that the
rule should benefit the investing public, not the plaintiffs’ bar
and that the DOL should take full advantage of the SEC’s expertise
to craft a better rule.”
The sentiments of industry stakeholders seem to mirror that of House Republicans
who hope to gather enough support for the legislation from lawmakers to
pass it in the Senate. The Republicans hold a 52-seat majority in the
Senate, but many Democrats have been saying that H.R. 2823 is dead on
arrival. As is expected with the CHOICE Act, Democrats are likely to filibuster
in the Senate in an attempt to kill the bill.
Regardless of whether or not the Republican bill passes, financial firms
are already scurrying about in preparation to adhere to the new fiduciary
rule. If the rule remains in place, some older advisors have indicated
they may leave the industry rather than change the commission structure
for the majority of their client accounts.
The DOL has acknowledged it will take time for brokers and firms to adjust
to the new rule and develop commission structures that are compliant,
while offering adequate incentives for the financial advisor.