Personal Finance

Opponents of new advice standard still pushing for repeal

Key Points
  • Legislation to change advice standard gets committee approval.
  • Industry groups support draft measure to apply a standard to more than retirement accounts.
  • Small IRA accounts in the most danger under DOL rule, critics say.

A new rule that raises financial advice standards remains in the crosshairs of opponents, with efforts to overturn it continuing in Congress.

Last week, a House committee approved a measure that would repeal the so-called fiduciary rule — which obligates financial advisors to act in the best interest of clients when it comes to their retirement accounts — and replace it with one allowing disclosures of potential conflicts of interest. Legislators are also working on a draft bill that would not only would adopt a disclosure-based standard but would apply it to all retail accounts, not just retirement money.

Critics of both measures say they do little to prevent investments from being sold that are more beneficial to advisors than to their clients.

Eric Audras | PhotoAlto | Getty Images

The bills are "designed to create the impression that they're doing something to protect investors even as they strip away protections," said Barbara Roper, director of investor protection for the Consumer Federation of America.

"Instead of requiring advisors to avoid, rein in and appropriately deal with conflicts of interest, they're saying, 'We'll deal with those conflicts through disclosure alone,'" Roper said.

Additionally, a draft spending bill that would eliminate funding for enforcement of the regulation also made it out of committee last week. Past defunding efforts have failed.

Since June 9, when the new advice rule took effect, financial advisors are required to charge no more than reasonable compensation, avoid misleading statements and provide advice that's in the best interest of the investor when it comes to 401(k) plans and individual retirement accounts. On Jan. 1, 2018, other provisions will take effect, including specific written disclosures that financial services firms and advisors must provide to clients.

Fiduciary rule

With the current congressional efforts to repeal the DOL rule falling along party lines — Republicans support it, Democrats don't — it's unclear whether either replacement bill would make it through both the House and the Senate.

The Affordable Retirement Advice for Savers Act, which was approved by the Committee on Workforce and Education, will head to a full House vote (although another committee might also review it). The draft bill, by Rep. Ann Wagner, R-Mo., was recently discussed in a subcommittee hearing but has yet to be formally introduced.

Much of the battle has centered on the $7.85 trillion in IRAs, which are moneymakers for financial services firms as investors often move their 401(k) savings into those accounts when they retire or switch jobs.

Opponents of the DOL rule say it's the smallest of those IRAs that are cause for concern. Various testimony supplied to Congress has centered on low-balance accounts losing access to advice completely due the associated compliance cost.

"We are grateful that Congress remains active on this issue," said Jen Flitton, managing director of federal government relations for the Securities Industry and Financial Markets Association, in a statement. She added that her group is "especially supportive" of Wagner's draft bill. SIMFA was among those who provided testimony during the subcommittee hearing.

The Labor Department, which is charged with enforcing the new advice rule, had delayed its original April 10 start date after President Donald Trump called on the agency to provide an economic and legal analysis of the regulation. Earlier this month, regulators asked for public input by Aug. 7 on various aspects of the new standard, including its costs and benefits.

Now, various industry groups are asking the agency to delay the Jan. 1, 2018, effective date for the remainder of the rule.

We are grateful that Congress remains active on this issue. said, managing director of federal government relations for the Securities Industry and Financial Markets Association
Jen Flitton
managing director, Securities Industry and Financial Markets Association

Meanwhile, a law that requires brokers to act in clients' best interest took effect July 1 in Nevada. Already, advisors who meet the state's definition of a financial planner already were obligated to meet that standard if they want to do business there.

Nevada state Sen. Aaron Ford, who introduced the bill earlier this year, said he was concerned by efforts at the federal level to prevent the DOL rule from taking effect.

"At the end of the day, if the federal government protects its citizens as it should, other states won't have to do what Nevada did," Ford said.

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