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Fiduciary standard bill passed by House panel

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Controversial legislation dealing with fiduciary standard regulations being considered by the Securities and Exchange Commission and the Department of Labor was passed today by the House Financial Services Committee.

It was approved by the committee, 44-13.

It is now being “sequentially referred” to the House Education and Workforce Committee.

See also: SEC objects to new fiduciary barriers

However, industry analysts see the bill has little likelihood of being enacted and they are focusing on have a proposal expected to be reintroduced in the fall by the DOL substantially revised.

In the unlikely event the bill is enacted, the bill would at least delay or perhaps kill imposition of a uniform fiduciary standard by the SEC.

It also would delay and possibly kill an initiative by the DOL to update the standard of care imposed on those who sell retirement investment products, according to industry officials.

That rule, not the SEC rule, is of the deepest concern to the industry.

The bill is H.R. 2374. It is sponsored by Rep. Ann Wagner, R-Mo.

The National Association of Insurance and Financial Advisors is not taking a position on the Wagner bill, according to several people close to the trade group.

“They support the goals but not the substance of the bill,” one lobbyist explained.

Duane Thompson, a senior policy analyst at fi360, said the legislation is unlikely to be enacted in this Congress with the current makeup of the Senate.

Related story: SEC, DOL approach fiduciary standard from different angles

That would change in 2015 if Republicans gained control of the Senate and retained control of the House, he said.

He said, however, that does not mean the legislation shouldn’t be monitored.

The committee is also proceeding despite strong outright opposition from a large number of investment advisory groups.

Opponents include the AARP, the Consumer Federation of America, North American Securities Administrators Association, the Financial Planners Association, the Certified Financial Planners Board of Standards, Investment Advisor Association, Investment Advisors Association and the National Association of Personal Financial Advisors.

Another lobbyist acknowledged that it is unlikely that the Wagner bill will ever become law, and that most investment advisors are instead focusing on the DOL proposed regulation, scheduled to be re-proposed in the fall.

“The DOL is saying that its revised proposal will be a ‘no conflict’ rule, but most advisers believe it will ultimately be a ‘no advice’ rule,” one lobbyist said.

“We are focused on stopping that,” the lobbyist said, “because the result will be to make it too risky for advisors to provide advice to the middle market on retirement investment products.”

“Our big concern is not the SEC fiduciary standard proposal, but the DOL proposal,” the lobbyist said.

The lobbyists cite the letter sent this week by 32 House Democrats — including 29 members of the Congressional Black Caucus—to the DOL voicing concern about the re-proposal.

“…we have concerns that the department’s re-proposal could severely limit access to low-cost investment advice,” the letter said.

As for the Wagner bill, Jill Hoffman, assistant vice president at the National Association of Insurance and Financial Advisors, said the language in that bill would force the SEC “to demonstrate that consumers are being systematically harmed or economically disadvantaged by the current standards,” before promulgating a uniform fiduciary standard rule.

Moreover, if that harm is found, Hoffman said, then the SEC must first look at alternatives (such as modifying disclosures) before proceeding with a new rule.

The language also restricts the DOL from moving forward on their rule by saying that the SEC would have to go first.

“NAIFA agrees that if the SEC is going to proceed on a rule, then they should demonstrate how the rule will resolve any harm to consumers, and that they should go before the DOL,” Hoffman said.

NAIFA President Rob Smith reiterated that NAIFA supports the intent of the Wagner bill, but not the substance.

He also said that NAIFA is concentrating on comments it plans to submit next week on the SEC’s request for economic data on the proposed fiduciary rule.

 He said that in its comments, NAIFA will say that it appreciates the SEC’s responsible, deliberate approach to rule making by conducting a cost-benefit analysis prior to considering whether to propose a uniform fiduciary standard or harmonized set of rules for broker-dealers and investment advisers.”

He said NAIFA plans to file comments to the SEC next week, recommending that the SEC should not take any action that would have the unintended effects of increasing costs or limiting access to financial advice for middle market investors.

“Any proposal should also preserve the business model of broker/dealers and their registered representatives, which currently serves many middle-market consumers who might otherwise not have access to professional advice and service,” Smith said that NAIFA will say in its comments.

Fi360’s Thompson said it is unlikely that the SEC will publish a rule implementing a uniform fiduciary standard this year, but that such a rule could be published for comment early next year.

However, he said, it is likely that the DOL will publish its rule for comment by the fall.

The FSC acted on the Wagner bill despite concerns voiced by Rep. Maxine Waters, D-Calif., ranking minority member of the committee.

“This appears to be yet another attempt to bog the SEC down to the point where they’re unable to put forward a rulemaking – even a rulemaking related to the crucial issue of protecting the hard earned retirement savings of millions of American families,” Waters said during debate on the measure.

“I am sympathetic to the desire to require coordination between the Department of Labor and the SEC so that investors, no matter who they are, can rely on one strong standard of care, no matter who is giving them advice,” Waters said.

“However, the bill also puts in additional redundant cost-benefit analyses that will only slow down this important rulemaking, and possibly tie up a final rule in years of court litigation,” Waters said.

Earlier, new SEC chairwoman Mary Jo White said the bill, if enacted, “would make it difficult” for the agency to craft a rule imposing a uniform fiduciary standard.


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