Yesterday, the U.S. House Committee on Financial Services considered and reported legislation to the full House which, if enacted, would likely put the brakes on efforts by the Obama Administration to expand a fiduciary duty to apply to broker-dealers.
The bill faces long odds in the Senate, but still represents a shot across the bow particularly to efforts by the Department of Labor to move forward with writing the regulations.
At issue are moves by the DOL and the U.S. Securities and Exchange Commission to write two separate rules on financial advice provided by broker-dealers and investment advisers.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank) grants authority to these agencies to expand the fiduciary standard currently applied to investment advisers to also cover broker-dealers. The DOL has jurisdiction over workplace retirement plans and individual retirement accounts, while any potential SEC rule would apply to retail investing.
The legislation, H.R. 2374 by Rep. Ann Wagner (R-Mo.), would require the DOL to wait 60 days after the SEC finalizes any fiduciary rule before issuing its rule. The measure would also require the SEC to complete several steps before issuing its rule, such as determining that any rule would not harm consumers or restrict their access to investment advice, as well as completing a cost-benefit analysis.
Separately, a group of House Democratic lawmakers sent a letter to the DOL this week asking that any fiduciary rule not restrict consumer access to investment advice.
The Big “I” has repeatedly expressed concern that an expansion of the fiduciary duty would lead to a burdensome increase in compliance costs on marketplace participants, as well as increased liability for the association’s small business membership.
These rules would be particularly problematic if the DOL and the SEC regulations were to overlap, due to lack of coordination between the two government bodies. Rep. Wagner’s bill would go a long way toward addressing the potential issues posed by the expanded fiduciary duty called for in Dodd-Frank.
Efforts such as those by Rep. Wagner will likely ramp up the pressure on the DOL in particular, as the agency moves towards re-proposing its much-maligned rule from 2010 on the fiduciary standard. Experts believe the DOL could release its rule again as early as this summer.
Ryan Young is Big “I” senior director of federal government affairs.