The House Subcommittee on Capital Markets, Securities, and Investment held a hearing last week to examine the impact of the Department of Labor’s (DOL) fiduciary rule, which went into effect June 9, on the capital markets.
The DOL’s rule requires financial advisers to act as fiduciaries and serve in the best interests of their clients in retirement accounts.
The primary focus of the hearing was to discuss the unintended consequences of the DOL fiduciary rule on the U.S. capital markets and the need for that rule to be delayed. Speakers also said the Securities and Exchange Commission (SEC) must act as the lead agency on this best-interest standard issue moving forward.
“Now, more than ever, sound financial advice has become critical for every individual looking to invest and save for their future. Every day, millions of Americans are working to achieve financial independence by using an investment adviser or a broker-dealer to help them plan and prepare for a prosperous retirement,” subcommittee chair Rep. Bill Huizenga (R-MI) said. “However, the Department of Labor’s complex fiduciary rule not only fails to protect consumers, it harms them by driving up costs and limiting investor choice.”
Speakers said the rule will raise costs and reduce access to retirement advice for Americans with low and middle incomes.
“However well-intentioned it may be, the DOL’s Fiduciary Regulation poses a very real threat to the financial well-being and retirement security of working Americans,” Mark Halloran, head of industry and regulatory strategy at Transamerica, said. “It is difficult to overstate the magnitude of that threat. The continued availability of what today is taken for granted – a vibrant and competitive marketplace for insured retirement solutions, readily available access to cost effective financial advice and true consumer choice about how to pay for that advice – is seriously jeopardized under the DOL’s approach.”
Douglas Holtz-Eakin, president of the American Action Reform, said the rule will place financial burdens on companies.
“Although the rule has not yet been fully implemented, research from the American Action Forum (AAF) has found that several major companies have already left part of the brokerage business or are drawing down their business and/or switching to a fee-based arrangement,” Holtz-Eakin said. “From these companies alone, reported compliance costs have already topped $100 million, affecting 92,000 investment advisors, $190 billion in assets, and at least 2.3 million consumers.”
David Knock, president of 1st Global, said the best interest standard should be enforced by the SEC.
“The SEC has unique expertise in regulation of broker-dealers and investment advisers as evidenced by numerous studies the SEC has conducted as required by Congress since its inception and, unlike the DOL, has the ability and authority to examine for compliance with the standard and bring corrective actions when necessary,” Knock said. “By establishing this standard for broker-dealers, investors will no longer have to wonder what the difference is between various financial professionals and what duty of care their financial advisors owes to them.”