The second-term Republican congresswoman from Missouri has become the de facto tip-of-the-spear against the Department of Labor’s recently proposed conflict of interest rule, which seeks to place a fiduciary standard of care on all advisors to retirement plans and individual retirement accounts.
“I find it despicable that Sen. Warren, D-Massachusetts, would take an entire industry and essentially call them all snake-oil salesman,” said Rep. Anne Wagner in an interview between appropriations votes on the House Floor last week.
“This proposal is another instance of top-down, Washington-knows-best approach. But the Obama Administration has shown no investor harm. This rule is a solution in search of a problem,” she said.
Since the Department of Labor released its proposed fiduciary rule a couple of weeks ago, momentum seems to have shifted in favor of those for it.
Labor Secretary Thomas Perez has been unambiguous in relating the Administration’s intention to see the proposal through, saying not establishing a new rule is not an “acceptable outcome,” in the press conference announcing the proposal’s release.
Even some of the largest broker-dealer stakeholders have stuck a more accommodative tone since the proposal’s release. John Thiel, head of wealth management at Merrill Lynch, has encouraged the industry to work in a “constructive and collaborative” manner with the DOL.
LPL, the nation’s largest independent broker-dealer, said it was “encouraged” by concessions the DOL made in its new proposal.
And last week, Sec. Perez quickly refused to oblige a request from broker and insurance industry advocates to extend the ongoing 75-day comment period, according to reporting in ThinkAdvisor.
Wagner says she knows what she’s up against, “Nothing about this will be easy.”
When she introduced the Retail Investor Protection Act in 2013, she and her cohorts were able to garner notable bi-partisan support. Ultimately the bill died in the Senate, which was under Democratic control at the time.
Wagner reintroduced the bill earlier this, ahead of the DOL’s release of the proposal.
The bill would require the Securities and Exchange Commission to be the lead rule-maker in establishing a new fiduciary standard.
It’s parked in committee right now, and unlikely to move out any time soon. Reports that the legislation will move to a vote on the House floor in the near future are unfounded, according to a Wagner staffer.
If it is brought to a vote, the Republican majority in the House is all but guaranteed to pass it. And reporting from Bloomberg that five Senate Democrats recently met with Sec. Perez to voice their concern over the proposal suggest to Wagner that, this go around, the Retail Investor Protection Act could garner filibuster-proof support in the Senate.
But that law is but one of a three-prong approach that makes up what Wagner called a “full court press” strategy against the proposal.
The second, she said, is a grass-roots effort to get lawmakers educated on what Wagner thinks are the proposal’s perils. A cadre of trade groups like SIFMA and the Insured Retirement Institute is coordinating that.
The third is the appropriations approach.
Wagner sits on the House Financial Services Committee, which oversees the entirety of the financial services industry, including the securities, insurance and banking industries, and the Securities and Exchange Commission.
To successfully leverage the appropriations process, Wagner would have to attach a rider to a spending bill that would prohibit the DOL from spending money on the proposal’s implementation.
Barbara Roper, director of investor protection at the Consumer Federation of America, says she and other stakeholders fighting for the proposal’s implementation are “worried” about that tactic.
“If someone is really intent on allowing financial service providers to continue to steer investors into high-cost, low-quality products, there certainly are ways to try to do that,” Roper said.
But the appropriations route is hardly a “slam-dunk,” said Roper, given President Obama’s personal commitment to a fiduciary standard for all advisors.
Ultimately, President Obama would have to sign the law to which a rider was attached, meaning it would have to part of what Roper calls a “must pass” bill, such as the Omnibus Spending Bill.
“I’m not saying that can’t happen,” Roper said. “The industry has a huge incentive to hold on to the excess profits they get through the system now. Right now, there’s no way to predict how this will all play out.”
Rep. Wagner’s district includes the western reach of St. Louis, home to Edward Jones, Scottrade, Stifel Financial and Wells Fargo Advisors. The financial services industry employs 84,000 people in the St. Louis area, with a payroll around $4.57 billion, according to Wagner’s website.
Unlike the leaders of Merrill and LPL, she isn’t at all satisfied with the concessions to commission revenue and 12b-1 fees made in the DOL’s new proposal.
“In a lot of ways it is even worse than the first,” Wagner said.
Most concerning to her, and as she said, the thousands of affected individual broker-reps in her district, is the Best Interest Contract Exemption, which would require advisors to state they’re putting their clients’ interests before their own.
“The store-front brokers with a company like Edward Jones—these are small business owners,” Wagner explained. “The cost of compliance and the private rights action litigation the proposal opens them up to will drive many out of business. The proposal is simply too onerous to survive for many.”
Roper calls that an overstatement.
“All the rule does is assure that people with meritorious cases have a better chance of prevailing. And they should,” she said.
Five years into this debate, both sides are feeling the pressure of the clock. The Omnibus Spending Bill passed last December funds the government through September 2015.
Then, Congress will have three months to consider a new year’s worth of appropriations, and Republicans against the DOL proposal will have to decide if they will try to use the next omnibus bill to try to kill it.
And the DOL will have about a year before a new President is elected.