As the last of the scheduled comment periods for the Department of Labor’s proposed fiduciary rulecloses, 96 House Democrats have signed a letter calling for further refinements to the rule.
The comment letter, addressed to Labor Secretary Thomas Perez, was first circulated from the office of Rep. Gwen Moore, D-Wisconsin.
It urges the DOL to take a “balanced approach” in both protecting consumer interests while not restricting access to retirement advice for lower and middle-income Americans.
Specifically, the letter raises concerns over the proposal’s controversial Best Interest Contract Exemption, which would require extensive disclosures on commission-based investment products.
Critics of that provision argue it would be costly to implement and expose advisors to too much liability.
That would encourage advisors to move to a fee-based model of compensation, say opponents of the rule, which would discourage providers from offering advice to lower-valued accounts.
The comment letter signed by the 96 House Democrats — more than half in the chamber — does not call on the DOL to withdraw the BIC exemption or the overall rule, but does say that, as proposed, it creates “practical problems for providers to implement.”
The Democrats call on the DOL to take less of a “prescriptive” approach and instead craft a principal-based provision.
“It is vital that the proposal doesn’t limit consumer choice and access to advice, have a disproportionate impact on lower or middle-income communities, or raise the costs of saving for retirement,” write the Democrats.
Moore was one of 30 Democrats to support the Retail Investor Protection Act of 2013, which would have required the Securities and Exchange Commission to be the lead regulator in crafting a new fiduciary rule. That bill is expected to be re-introduced in the coming weeks by Rep. Ann Wagner, R-Missouri.
Barbara Roper, Director of Investor Protection at the Consumer Federation of American, which has been a consistent lobby for a strong DOL fiduciary rule, cautions that the comment letter from House Democrats should not be interpreted as a call to withdraw the rule, delay its finalization, or an insistence that the SEC be the lead regulator.
“We actually see the letter as a positive development,” said Roper. “The changes the Democrats are talking about are not changes that go to the heart of the rule’s protections.”
She said a number of the letter’s signatories are progressives who would not have signed on if they thought it was an attack on the DOL.
But a report in The Hill that a recent meeting between Secretary Perez and several Democrats grew contentious suggests that at least some of the letter’s signatories have significant issues with the proposal.
“The White House and DOL should be very concerned that this many Democrats are expressing very legitimate concerns over this proposal,” said one industry lobbyist familiar with the meeting, according to The Hill’s reporting.
Roper remains convinced that if any Democrats are willing to stall the proposal’s finalization, they only represent a small minority of the caucus.
“Some of the Democratic members that have previously focused on delaying the rule have recognized that the DOL proposal is moving forward, and that it can and will be adjusted to address legitimate operational concerns,” she said.
All of the issues raised in the Democrats’ letter are supported by the current comment process, thinks Roper, who said the CFA’s own comments to the DOL express room for compromise on several areas of the proposal, specifically with respect to components of the BIC exemption and the education carve-out.
“The changes the Democrats are calling for should in no way delay the rule’s finalization,” added Roper, who said she expects the DOL to finalize the rule by early next year, so long as the agency is “not stopped by Congress.”
The fiduciary rule’s primary opponents haven’t given up trying to kill the rule, she said.
Earlier this year, several committees in the Republican controlled House and Senate produced budget proposals that would defund the DOL’s ability to implement a new rule.
Now, Congress is setting up for a massive budget debate. The fiscal year ends next week, and some government agencies are preparing for a government shut down, as lawmakers remain far from passing an extended budget by the end of September.
Roper and other proponents of the DOL’s proposal fear Republicans may try to defund the DOL’s rule by attaching a last-minute rider to an omnibus spending bill, which of course would have to be signed by President Obama.
In its comment letter, the Business Roundtable, an association of CEOs who collectively employ 16 million workers, raises several concerns the business community has for how the proposal would affect 401(k) plan sponsors and participants.
“The Administration needs to go back to the drawing board on this one,” said John Engler, president of the Business Roundtable and former three-term Republican governor of Michigan.
“Look at the publicly available data, do a comprehensive cost-benefit analysis and seriously evaluate the availability of less burdensome alternatives,” said Engler in a statement.
This week, Rep. Peter Roskam, R-Illinois and Chairman of House Ways and Means Subcommittee on Oversight, announced a hearing on the DOL’s fiduciary rule for Wednesday, September 30.
Requests for comments from Rep. Moore and Rep. Wagner’s office were not returned before press time.