Fiduciary duty bill could kill DOL rule

Assistant Labor chief Borzi says bill won't slow her efforts

By Mark Schoeff Jr.   |  June 18, 2013 - 4:20 pm EST - InvestmentNews

The House Financial Services Committee is scheduled to vote Wednesday on legislation that would require the Securities and Exchange Commission and the Labor Department to coordinate their efforts to strengthen investment-advice rules. But some observers say coordination is likely to mean the end of the DOL's efforts.

“This bill clearly would delay the DOL from moving ahead in the near term with fiduciary rule making under [federal retirement law],” said Neil Simon, vice president of government relations at the Investment Adviser Association.

In fact, it could stop it altogether.

“Consider a scenario in which the SEC decided not to promulgate a rule,” said Marilyn Mohrman-Gillis, director of public policy and communications, at the Certified Financial Planner Board of Standards Inc. “It could prevent the Department of Labor from engaging in rule making.”

The bill was introduced in May by Rep. Ann Wagner, R-Mo., as a discussion draft. In converting the measure to formal legislation, Ms. Wagner sharpened language pertaining to the SEC's and DOL's work on separate fiduciary-duty rules.

Under Ms. Wagner's bill, the Labor Department would be prohibited from proposing a rule that would expand the definition of “fiduciary” as it applies to anyone providing investment advice to retirement plans such as 401(k)s until 60 days after the SEC proposes a separate uniform fiduciary duty rule for retail investment advice.

That won't stop Assistant Labor Secretary Phyllis Borzi, who has been the driving force behind the DOL fiduciary rule.

While Ms. Borzi declined to comment specifically on Ms. Wagner's bill, she told reporters on the sidelines of an Insured Retirement Institute conference in Washington Tuesday that DOL will forge ahead with its rule, which she sees as important for protecting workers from conflicted advice about retirement plans that many now have to manage on their own.

She noted that the DOL is working independently of the SEC.

“Of course not,” she said when asked if DOL would wait on the SEC. “We're coordinating very closely with the SEC to make sure we don't have outright conflicts.”

The DOL is expected to re-propose its rule in the next couple months. The SEC is not nearly as far along. It is collecting information to conduct a cost-benefit analysis that would help the agency determine whether to propose its own fiduciary-duty rule.

Unlike the discussion draft, Ms. Wagner's formal bill specifically mentions the DOL and outlines a timetable. The bill also has been submitted to the House Education and Workforce Committee, which has jurisdiction over the Labor Department.

The DOL first issued its fiduciary proposal in 2010. It was withdrawn after fierce financial industry protest against provisions that would have for the first time subjected brokers selling individual retirement accounts to the more stringent fiduciary requirements.

Opponents of the DOL fiduciary rule have warned that the rule and the SEC fiduciary rule for investment advice could overlap, causing compliance difficulties for brokers. The DOL proposal has drawn bipartisan opposition on Capitol Hill.

Ms. Wagner's bill also addresses the SEC's potential rule. It would require that the agency determine whether investors are currently being harmed by the differing advice standards that advisers and brokers meet and assess whether a uniform standard would limit investor access to advice. Under current law, advisers must act in the best interest of their clients, while brokers meet a less stringent suitability standard when selling investment products.

Unlike the discussion draft, the formal bill does not require the SEC to harmonize broker-dealer and adviser regulations on registration, supervision and examination before advancing a uniform standard.

That development pleased adviser advocates, who see “harmonization” as a code word for halting a uniform standard.

“It is nowhere near as threatening as the provision that was in the discussion draft,” Mr. Simon said.

The House financial committee is likely to approve the bill, which would send it to the House floor for a vote by the full chamber.

Even though its prospects in the Senate appear poor, parts of the bill -- including the harmonization requirement -- could wind up in other proposals. What's more, the measure might send a very skeptical signal to the SEC and DOL about their fiduciary rules.

“It could make the agencies that much more cautious in the manner in which they proceed,” Mr. Simon said.