From the October 2015 issue of Investment Advisor • Subscribe!

House GOP Makes Last-Ditch Effort to Stall DOL Fiduciary Rule

If Obama vetoes Rep. Wagner’s bill to stop DOL, she vows to use the appropriations process

Rep. Wagner's bill would require the DOL to wait to issues its fiduciary rule until the SEC issues its own rule. (Photo: Tom Williams/Getty Images) Rep. Wagner's bill would require the DOL to wait to issues its fiduciary rule until the SEC issues its own rule. (Photo: Tom Williams/Getty Images)

House Financial Services Committee Chairman Jeb Hensarling, R-Texas, said in mid-September that he would advance Rep. Ann Wagner's Retail Investor Protection Act to “stop” the Department of Labor's “misguided” fiduciary rule and require the DOL to defer to the Securities and Exchange Commission's “expertise” on fiduciary-related issues.

Wagner, R-Mo., told reporters on a call the day before a Sept. 10 hearing was held by the House Financial Services Capital Markets and Oversight and Investigations Subcommittees that she wanted her bill marked up and passed by the full House Financial Services Committee by the end of September.

The hearings, titled “Preserving Retirement Security and Investment Choices for All Americans,” discussed “how to handle” what Wagner said is “overreach” by the Obama administration and DOL.

If everything goes as DOL plans, officials anticipate that Labor's fiduciary rule will be finalized by May 2016.

Wagner said on the call that while her bill could go straight to the full committee for a vote, the plan was to put it through a markup. Her bill, the Retail Investor Protection Act, which requires the DOL to hold off on issuing its fiduciary rule until the SEC issues its own fiduciary rule, has to secure enough Democratic votes on the committee, of which she's a member, to be sent to the House floor for a vote.

Wagner acknowledged that the “lobby” against her bill is “very tough,” citing opponents like Sen. Elizabeth Warren, D-Mass., as well as Labor Secretary Thomas Perez and the Obama administration.

However, while “DOL is dug in” on ensuring its fiduciary rule gets finalized, Wagner said she's “pretty dug in, too,” on making sure it doesn't. Her goal, she said, is to get the bill “dispatched through the House, and if the president vetoes it we’ll look at other options at that time.”

‘The Proper Avenue for Further Regulation’

Wagner noted that she’d like her bill to move “as stand-alone legislation” and not attached to a year-end spending bill. If the bill doesn't move forward in the Senate or President Barack Obama vetoes it, she added, “we’ll take that hurdle when it comes; I do believe there are ways, through the appropriations process, that this could be ultimately dealt with if necessary.”

During the joint hearing held by the House Financial Services Capital Markets and Oversight and Investigations Subcommittees, Wagner argued that Perez is violating the Administrative Procedure Act (APA) by not reproposing the plan.

She said the statements made to her in an Aug. 7 letter by Perez that DOL would issue a final rule — and not a reproposal — signals DOL is reluctant to revise its redraft to amend the definition of fiduciary under the Employee Retirement Income Security Act. “Based on that, it's hard to imagine the DOL producing a workable rule based off of this proposal. The divide is just too wide between the two,” she stated on a call with reporters.

She noted that Perez's letter nixing a reproposal was sent to her before DOL held its hearings between Aug. 10 and Aug. 14 on the redraft. DOL took comments on the hearing transcripts until Sept. 24.

Wagner argued during the hearing that her Retail Investor Protection Act is “the proper avenue for further regulation” in the fiduciary area. Her bill, she said, is “good legislation that prevents an overzealous administration from taking away sound advice from low- and middle-income savers.”

But Mercer Bullard, professor of law at the University of Mississippi Law School and founder of Fund Democracy, who testified at the Sept. 10 hearing, told IA that “there is no APA claim for a failure to repropose” a rulemaking. “The claim would be based on the analysis underlying the final rule, but Rep. Wagner is not interested in the final rule.”

The Financial Planning Coalition — consisting of the Financial Planning Association, the CFP Board of Standards and the National Association of Personal Financial Advisors — agreed that DOL “will not violate the APA if it moves straight to a final rule.”

The Administrative Procedure Act requires that an agency “must give notice of a proposed rulemaking, published in the Federal Register, and, after notice is given, solicit and accept public comments on the rule. Those comments will then be used in the agency's analysis when promulgating a final rule,” the Coalition said.

Case law, the Coalition continued, “reflects that even if a final rule contains changes from the proposed rule, it need not undergo a second notice and comment period, even where an agency makes substantial changes from a proposed version.”

DOL or SEC?

Paul Schott-Stevens, president and CEO of the Investment Company Institute, testified at the hearing that “the worst thing that could happen is that this [DOL] proposal is adopted in its current form.”

Perez has stated publicly that DOL is “flexible” and willing to listen to feedback on how to revise the rule.

Rep. Earl Perlmutter, D-Colo., stated during the Sept. 10 hearing that he has spoken with Perez and that “DOL is willing to listen” to how its redraft needs to be changed. He noted that while he co-sponsored the 2013 version of Wagner's bill, he couldn't support the version Wagner reintroduced on Feb. 25. “That train has left the station,” he said. “I’ve been waiting for four years for the SEC to act” on its own fiduciary rulemaking.

Bullard, a supporter of DOL's fiduciary plan, acknowledged that the SEC should have addressed the fiduciary issue, but has “failed to do so.”

ICI's Schott-Stevens added that while ICI and its members support the “principle that underlies” DOL's proposal that all advisors act in the best interest of their clients, “there is deeper expertise at the SEC on these [fiduciary-related] issues, and they should have been to this ball more quickly.”

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