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Not So Fast: Congressional Letter Could Put a Kink in DOL’s Proposal

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The Department of Labor has made it a top priority to put out its long-awaited and highly controversial fiduciary proposal this year, but now the DOL faces new pushback from Congressional leaders. This week, 32 members of Congress—mostly from the Black, Hispanic and Asian Pacific American Caucuses—sent a letter to the DOL, outlining concern that the re-proposal will disadvantage their constituents and limit minority access to financial advisors.

“After years of hard work, often for long hours and at low wages, many of our constituents face the challenge of planning for their retirement without access to professional investment advice and services,” the letter said. “We are concerned that a new, more restrictive definition of fiduciary would add yet another barrier to accessing qualified retirement planning services.”

The DOL push the kibosh on its first proposal in late 2011, after receiving a letter from 33 congressmen, criticizing the DOL for failing to conduct a cost-benefit analysis of the rule and neglecting to coordinate with the Securities and Exchange Commission’s efforts to create a fiduciary rule of its own. This recent letter referred to the first letter.

"We encourage the Department to learn from its earlier experience by ensuring that the re-proposal addresses the concerns raised by a bipartisan, bicameral Congress that caused the Department to withdraw the original proposal in September 2011," the recent letter said.

The letter may cause the DOL to take a second look before issuing the new proposal, expected out in September, said Robert Lewis Jr., vice president of legislative affairs at the Financial Services Institute.

“I think they’re highlighting a concern that folks in the industry are looking at—the issue that lower income folks have access to advice,” Lewis said. “And making sure the rule doesn’t do anything that harms the minority communities that they represent.”

If the DOL stays on track, many non-fiduciary advisors would become subject to ERISA fiduciary standards for the first time—one reason that broker/dealer advocates like FSI and SIFMA are arguing to get some sort of exemption for IRA accounts. The brokerage industry’s position has been that small retail IRA investors are largely serviced by the IBD market using load and commission-based funds. If an advisor can’t earn a commission on a smaller account, it’s problematic. If they have to switch to a fee-based approach, the fees would likely be exorbitantly high on small IRA accounts.

“A lot of the folks in their congressional districts are folks who are not in IRA accounts of $250,000 or more,” Lewis said.

The list of congressmen and women who signed the letter included Maxine Waters, a California Democrat who has introduced a bill calling for investment advisors to pay the SEC an annual fee for examinations, as well as Greg Meeks, Emanuel Cleaver and Lacy Clay, members of the House Financial Services Committee.

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