Seven financial services industry and consumer organizations are protesting a bill pending in Congress that the organizations say would harm consumers by hindering the Department of Labor and SEC from making changes to the definition of a fiduciary.
In a letter dated Tuesday to Rep. Jeb Hensarling, chairman of the House Financial Services Committee, and Rep. Maxine Waters, ranking member of the committee, the organizations ask that the two members of Congress oppose the Retail Investor Protection Act (H.R. 2374). The bill is sponsored by Rep. Ann Wagner, R-Missouri, and was considered by the Financial Services Committee Wednesday.
The bill was released from the committee by a vote of 44 to 13 with Hensarling voting for it and Waters against. Daniel F. Drummond, director of public relations for the Certified Financial Planner Board of Standards, says the organizations will continue their opposition to the bill as it makes its way through Congress.
The Department of Labor and the SEC are both considering rule changes that would alter the definition of a fiduciary under the Employee Retirement Income Security Act (Erisa) and the Investment Advisers Act of 1940, respectively.
The bill sponsored by Wagner would alter the rulemaking process in such a way that it would harm consumers, according to officers from the organizations signing the letter. The organizations are AARP, the CFP Board, the Consumer Federation of America, the Financial Planning Association, the Investment Adviser Association, the National Association of Personal Financial Advisors and the North American Security Administrators Association.
The organizations object to the cost-benefit analysis that would be required of the SEC under the Wagner bill before it could approve a change in fiduciary rules.
“We certainly believe that all of the SEC’s proposed rules should undergo appropriate economic analysis before adoption,” the letter says, “but this legislation imposes extraordinarily rigorous cost-benefit analysis requirements that would delay (or even prevent) the rulemaking and increase the likelihood of it being struck down by the courts upon legal challenge.”
It also requires the DOL to wait until 60 days after the SEC acts before it can act on a rule change regarding the fiduciary definition.
This “not only unnecessarily slows DOL’s rulemaking, but it potentially halts DOL’s rulemaking altogether if the SEC does not act,” the letter says. DOL should be allowed to exercise its normal rulemaking process without being tied to a separate agency acting under a separate statute, the organizations say.
The organizations say the Wagner bill would hurt investors rather than help them by making it too difficult to make the needed rule changes.
The president of Naifa, a national association representing insurance professionals, issued a statement Wednesday in support of the Wagner bill. President Rob Smith says the SEC should determine if changes are needed and, if so, it should act before the DOL acts. He also says that Naifa appreciates the need for the SEC to conduct a cost-benefit analysis.
However, Smith asks the SEC not to change the definition of fiduciary in any way that would limit the access to financial advice for middle-market investors.
Members of minority caucuses in Congress sent a letter to DOL Acting Secretary Seth Harris on June 14 asking that the definition of fiduciary not be changed in such a way that makes it impossible for financial advisors to work with investors who have small retirement accounts.
Wagner said before the committee Wednesday that she agrees with these members of Congress in their concerns about rewriting the definition of fiduciary. Her bill is designed to address these concerns and protect investors from changes in the rules that would ultimately harm them, she says.
“I think it is important to remember what is at stake here,” she told the committee. “American families invest trillions of dollars in IRAs and through mutual funds, stocks, bonds and other types of investments. Federal regulators must not lose focus on the impact all of these rules could have on retail investors, and the Retail Investor Protection Act will ensure that they tread carefully.”