The fiduciary rule expands the “investment advice fiduciary” definition under the Employee Retirement Income Security Act of 1974 (ERISA) by elevating all financial professionals who work with retirement plans or provide retirement planning advice to the level of a fiduciary. Republicans have argued that the fiduciary rule would jeopardize access to affordable retirement service. In an effort to overturn the fiduciary rule, Rep. Peter Roskam (R-IL), chairman of the Ways and Means Subcommittee on Tax Policy, and Rep. Phil Roe (R-TN), a member of the House Committee on Education and Workforce, introduced the Affordable Retirement Advice for Savers Act (H.R. 2823). According to the Republican party, this bill would protect access to “affordable retirement advice” by overturning the DOL’s fiduciary rule which certain lawmakers and financial industry insiders consider a flawed rule that will make it more expensive for small investors to save for retirement.
Rep. Roe stated that the fiduciary rule makes it harder for low and middle-income families to save for retirement, saying, “The Obama administration made a reckless, unnecessary trade-off between strong protections for retirement savers and access to affordable retirement advice. This legislation reflects a more responsible solution that will ensure all Americans have access to affordable retirement advice that’s in their best interest.”
Rep. Roskam added, “This bill encourages more people to save and helps ensure advisors always serve the best interests of their clients.” Roskman also claims that the bill will assist small business owners by making it easier and more affordable for them to enlist expert retirement advice.
The lawmakers stated that the bill would overturn the DOL fiduciary rule while ensuring that financial advisors represent the best interests of their clients. They both claimed the law provides “transparency and accountability through clear, simple and relevant disclosure requirements.”
Back in early May, Roe and other lawmakers sent a letter to Labor Secretary R. Alexander Acosta to ask for a permanent delay in the implementation of the fiduciary rule pending approval of this new bill. However, despite earlier delays, the new fiduciary rule went into effect on Friday. Sec. Acosta indicated that the rule would finally take effect, but would not rule out a further review.
Advisors are not clear how the rule will be enforced, with the DOL issuing a statement that said, “During the phased implementation period … the department will not pursue claims against fiduciaries who are working diligently and in good faith to comply with the fiduciary duty rule and exemptions, or treat those fiduciaries as being in violation of the fiduciary duty rule and exemptions.”
Financial industry executives reacted to the rule implementation differently, with some taking a pragmatic approach and others wondering why we need the rule when most financial advisors are already acting as a fiduciary for their clients.
While the fiduciary rule requires financial advisors act in the best interest of their clients, many investment insiders say the rule goes too far in directing what investments certain clients can participate in based on commissions, and creates ambiguity in how the rule is applied.
Dale Brown, president, and CEO of the Financial Services Institute stated, “While we are disappointed in this latest development, we agree with the guiding principles Secretary Acosta outlined… that the rule should benefit the investing public, not the plaintiffs’ bar and that the DOL should take full advantage of the SEC’s expertise to craft a better rule.”
The sentiments of industry stakeholders seem to mirror that of House Republicans who hope to gather enough support for the legislation from lawmakers to pass it in the Senate. The Republicans hold a 52-seat majority in the Senate, but many Democrats have been saying that H.R. 2823 is dead on arrival. As is expected with the CHOICE Act, Democrats are likely to filibuster in the Senate in an attempt to kill the bill.
Regardless of whether or not the Republican bill passes, financial firms are already scurrying about in preparation to adhere to the new fiduciary rule. If the rule remains in place, some older advisors have indicated they may leave the industry rather than change the commission structure for the majority of their client accounts.
The DOL has acknowledged it will take time for brokers and firms to adjust to the new rule and develop commission structures that are compliant, while offering adequate incentives for the financial advisor.