The House Financial Services Committee passed late Wednesday afternoon by a 34-25 vote Rep. Ann Wagner’s bill to stop the Department of Labor from finalizing its fiduciary rulemaking until the Securities and Exchange Commission acts first.
Wagner’s bill, HR 1090, the Retail Investor Protection Act, was referred to the full House. The House Ways and Means Oversight Subcommittee held a hearing on DOL’s fiduciary redraft the same day.
While SEC Chairwoman Mary Jo White said Tuesday during an SEC event in Washington that a uniform fiduciary rulemaking would be on the agency’s rulemaking agenda going forward, a fiduciary rule won’t be coming anytime soon.
Wagner said during the Wednesday markup that DOL “has demonstrated at every possible instance that they don’t have the capability or desire to listen or make necessary changes to the final rule and are on a deadline to get the rule out the door before the end of this administration,” which she said means that a final rule would likely “bring unintended or possibly intended consequences” to millions of investors saving for retirement.
Wagner argued that DOL’s plan would make “sweeping changes to the way that Americans receive financial advice” for their retirement savings, and that it would “force millions of low- to moderate-income retirement savers from the advice market to robo-advisors.”
But Tim Hauser, deputy assistant secretary for program operations of DOL’s Employee Benefits Security Administration, told attendees at an event held by the Investment Management Consultants Association at the National Press Club in Washington on Tuesday to “bear in mind that this is just a proposal; we just finished a notice and comment period, and I have little doubt that the rule is going to change as we move to a final.”
Rep. Gwen Moore, D-Wis., who voted for Wagner’s original bill floated in 2013, said she couldn’t support Wagner’s bill this time around, noting that the “landscape has changed” since then. “We have to at least see what the [DOL] proposal is before we do anything that’s more draconian,” she said.
Wagner said the latest version of her bill “makes it easier” for the SEC to move ahead with a fiduciary rulemaking.
Damon Silvers, associate general counsel for the AFL-CIO, who testified at the House Ways and Means Oversight hearing, said that his “fellow witnesses,” testifying on the panel that DOL’s rule would block advice “will be giving advice to all of their clients once the [DOL] rule is passed.”
Barbara Roper, director of Investor Protection for the Consumer Federation of America, said after Wagner’s bill passed that “today’s vote forces us to choose between seeing the glass as half-full or half-empty. Certainly it is disappointing that a majority of Committee members voted in favor of a bill that would call a halt to regulatory efforts to ensure that all retirement savers get advice that serves their best interests. And the pretense that this is being done to protect retail investors is particularly galling,” Roper said.
On the other hand, she continued, “all but one Committee Democrats voted against a measure that once claimed strong bipartisan support. Clearly, Democratic support for the Department of Labor rulemaking has solidified as members have recognized that the rule that has been proposed is balanced, that the Department is open to making reasonable changes to make the rule more flexible and streamlined, and that retirement savers cannot afford to wait for an SEC rulemaking that may never come. We are grateful to the many members of the Committee who voiced strong support for the DOL effort.”
If her bill is blocked by the Senate and President Barack Obama, Wagner has stated that she believes “there are ways, through the appropriations process,” to stop DOL’s fiduciary rule.
Meanwhile, a letter sent by Sen. Elizabeth Warren, D-Mass., to Dr. Robert Litan, a nonresident senior fellow at the Brookings Institution, challenging his critical study on DOL’s fiduciary rule, has resulted in his resignation from that post. Warren stated that Litan’s study, titled “Good Intentions Gone Wrong: The YetToBeRecognized Costs of the Department Of Labor’s Proposed Fiduciary Rule,” opposing DOL’s rule “contained a broad – but vague – disclosure, stating that ‘funding for this study was provided by the Capital Group, which provides investment services worldwide.’”
The study, released in July, states that DOL’s Regulatory Impact Analysis concludes “erroneously that the net benefit of the rule would be roughly $4 billion per year (the Council of Economic Advisers, making related errors, pegs the benefit at $17 billion). A conservative assessment of the rule’s actual economic impact—taking into account the categories of harm noted above that are ignored by DOL and CEA—finds that the cost of depriving clients of human advice during a future market correction (just one of the costs not considered by DOL) could be as much as $80 billion, or twice the claimed tenyear benefits that DOL claims for the rule.”
After questioning Litan on the study, Warren said that he told her that the Capital Group commissioned Economists Inc. to have Litan and Dr. Hal Singer conduct the study, and that “Economists, Inc. was paid $85,000 for us to conduct” the 28 page study. Litan further clarified that “my personal share was $38,800,” which Warren stated showed a clear financial conflict.
Litan is senior consultant to Economists Inc.
Warren noted that Litan also provided “two additional pieces of previously undisclosed information – that the study was funded entirely by the Capital Group and that the Capital Group provided ‘feedback on our initial outline and some editorial comments’” on the study.