While the Financial Choice Act of 2017, the Republican bill to derail Dodd-Frank and Labor’s fiduciary rule, passed out of the House Financial Services Committee in early May, chances of getting it through the Senate fully intact — and passed into law this year — are unlikely.
After three days of raucous debate, the Financial Choice Act passed the committee by a 34-26 vote. Democrats vehemently opposed provisions of the bill that gut the Consumer Financial Protection Bureau, kill the Volcker rule and repeal the Labor Department’s fiduciary rule so that the Securities and Exchange Commission can move first on its own fiduciary standard.
Duane Thompson, senior policy analyst at fi360, said that GOP House members’ Creating Hope and Opportunity for American Investors, Consumers, and Entrepreneurs (Choice) Act will face changes in the Senate Banking Committee — which has 12 Republicans and 11 Democrats. While the bill stands a chance of getting out of committee in some form, it would need 60 votes to pass the full Senate.
“If anything gets into final law, it will be some easing of regulations on community banks, possibly getting rid of the Volcker Rule, but not the DOL fiduciary rule repeal,” Thompson opined.
The Choice Act has “a 5% chance of becoming law at this point,” Thompson argued. “The only reason it might pass is if the Senate changes its rules on filibusters to a simple majority of 51, but right now most Republicans and Democrats agree they don’t want to do that.”
House Financial Services Committee Chairman Jeb Hensarling’s Financial Choice Act “is also going to have to compete with health care and tax reform this year,” Thompson argued. “It’s not clear Congress is going to be able to tackle all three this year and finish their work.”
After the bill passed, Hensarling said that the Choice Act “ends bailouts so Washington can never again pick taxpayers’ pockets and hand the money over to big banks. With the Financial Choice Act, the era of big bank bailouts and ‘too big to fail’ will be over. There will be bankruptcy for failed banks, not bailouts.”
Banks that qualify “for much-needed regulatory relief will be so well-capitalized that they pose no threat to taxpayers or the economy. Our plan replaces Dodd-Frank’s growth-strangling regulations on small banks and credit unions with reforms that expand access to capital so small businesses on Main Street can grow and create jobs,” added Hensarling, R-Texas.
Sen. Elizabeth Warren, D-Mass., lambasted the Choice Act in testimony before Democratic members of the committee days before the bill’s markup. She called the act a “586-page insult to working families.”
The act, which would dismantle the CFPB Warren helped set up, is “about throwing people under the bus so that lobbyists can do the bidding of Wall Street.”
Investment Company Institute President and CEO Paul Schott Stevens applauded passage of the bill out of committee and urged Congress “to move ahead” with the act’s “wide-reaching reforms” that fix “flawed aspects of the Dodd-Frank Act.”
The bill passed the full House on June 8.
Groups push for SEC Fiduciary Rule
Financial Services Roundtable CEO Tim Pawlenty also applauded passage of the act, stating that advisors’ regulation and oversight “should be the primary responsibility” of the SEC, as it has “the expertise, knowledge and authority to most effectively and efficiently coordinate the myriad of applicable laws and regulations pertaining to such investment activities.”
FSR was among the chorus of industry trade groups that pressed newly christened SEC Chairman Jay Clayton to move on issuing a uniform fiduciary rule for brokers and advisors.
Clayton’s priorities should be proposing a “harmonized best interest standard” for broker-dealers and bringing mutual fund disclosure into the 21st century by allowing ETFs, mutual funds and variable insurance products to deliver prospectuses online, Stevens said at ICI’s annual conference in Washington in early May.
Stevens said ICI is “deeply disappointed” that the DOL’s fiduciary rule was only delayed by 60 days “because the rule is already causing great harm.”
He added that the industry group has heard from its members that “hundreds of thousands of small retirement accounts have been ‘orphaned’ just since” the Department announced the rule’s 60-day compliance extension.
“Faced with the sizable if uncertain legal and regulatory risks of assuming DOL fiduciary status vis-à-vis these fund shareholders, brokers are simply resigning from small accounts en masse,” he said. “All this carnage is unnecessary because, in the end, we believe the rule must be rescinded or significantly revised.”
Fiduciary Compliance in Limbo
At press time in mid-May, Labor Secretary R. Alexander Acosta — who was confirmed by the Senate on April 27 — has made halting the fiduciary rule’s June 9 compliance date a top priority, with published reports saying he’s looking for a way to freeze the rule that will “stick.”
“Our sense is that [Acosta] is still looking for a ‘solution’ that could be implemented in final form before June 9,” said Fred Reish, partner in Drinker Biddle & Reath’s employee benefits and executive compensation practice group in Los Angeles. “He seems to want an answer that cannot be challenged successfully in court, but we think he is still looking for that answer.”
However, it will take “quick and decisive work to get another delay pushed through before June 9,” said Joshua Waldbeser, counsel with Drinker Biddle.
“Also, the tenor of the existing delaying regulation indicates that no further delays should be expected in the short term. My consistent advice to clients has been to assume that the applicability date will in fact come to pass on June 9, and to prepare for compliance with the limited requirements in the [prohibited transaction] exemptions during the transition period,” he explained.
News broke in mid-May that Acosta told Sen. Tim Scott, R-S.C., that he “recognized the urgency of the situation” and is looking for a way to halt the rule.
The National Association for Plan Advisors says that according to the communication between Acosta and the senator, “Scott pressed the case against the rule, saying that it wasn’t going to hurt Wall Street as much as it will hurt everyday Americans who need access to investment advice.”
Scott and Acosta met to follow up on a letter that Scott and eight other GOP senators sent to Acosta on April 28 urging the DOL, “pursuant to the president’s memorandum,” to carry out “the president’s directives without delay and finalize a new fiduciary rule review before any part of the rule becomes applicable.”
The National Association for Fixed Annuities launched a grassroots campaign on May 8 to appeal directly to the Trump administration.
“We want the administration to understand the disappointment and anxiety being felt by our membership, which thought President Trump would never allow such a far-reaching excessive regulation to get this far,” said NAFA Executive Director Chip Anderson in a statement announcing the initiative.
Anderson said that “over 2,000 members have already written the White House, and we anticipate hundreds more will be doing so in the weeks ahead.”
NAFA is also appealing a federal court’s denial of its bid to block the fiduciary rule.
Eric Marhoun, chair of NAFA’s DOL steering and litigation committee, and executive vice president and general counsel for Fidelity & Guarantee Life, told IA in a May 8 interview that NAFA’s briefing before the DC Circuit Court of Appeals is set for June 16.
DOL and the Justice Department must file their brief 30 days later, and NAFA will then have to issue a reply brief within 15 days. “We’re hoping that we’ll have oral arguments in the fall and that our appeal will lead to the repeal of Labor’s fiduciary rules,” Marhoun said.
— Read Trump’s Massive Spending Cuts Unlikely to See Daylight on ThinkAdvisor.