Fitzpatrick Responds to Administration's Fiduciary Rule

Press Release

Congressman Mike Fitzpatrick (PA-8), a member of the House Financial Services Committee, released the following statement regarding the Department of Labor's release of its finalized fiduciary rule:

"While I share the Administration's concerns to protect retirees and individuals planning for their retirement, I have serious concerns that this rule will have the unintended consequence of placing quality and affordable financial advice out of reach for the millions of American families that need it most. It is important that elected officials carefully review this new rule to ensure investors are receiving the best advice and small businesses are spending more time advising their customers rather than complying with new Washington mandated regulations."

Background

During five hearings and a markup on the proposed rule, the Financial Services Committee learned:

The supposed basis of the Department of Labor's proposal -- that investors are losing $17 billion a year due to conflicts of interest -- does not withstand even minimal analytical scrutiny. There is no study that directly supports this estimate, and it appears to be based upon generalizations and extrapolations that are not fully supported by empirical data.

"The calculations underlying these numbers misinterpret and incorrectly apply the findings of the very same academic research cited as the foundation of the claims, and do not consider the significant harm to retirement savers that is sure to result if the Department adopts the rules as currently drafted. In fact, these assertions do not stand up when tested against actual experience and data." - Paul Schott Stevens, President and CEO of the Investment Company Institute

The Department of Labor's Regulatory Impact Analysis also appears to have omitted the costs of the loss of financial advice to investors. Even the Department of Labor itself, in a 2011 report, estimated that consumers who invest without professional advice make investment errors that collectively cost them $114 billion per year -- far exceeding the purported benefit of the rule. Using the Labor Department's own report, implementing a rule that could limit access to financial advice would create costs that far exceed its presumed benefits.

The United Kingdom (UK) implemented a similar rule for "conflicted financial advice" in 2013. Within two years, the rule had created an advice gap in which 60,000 investors were unable to receive financial advice. As a result, the UK's government initiated a review of the extent to which financial advice for smaller investors is being diminished by the rule.

A report from Cass Consulting on the impact of the UK's initiative noted that it has left aside those "who have too few assets to merit attention from professional advisers, though they may well be in need of financial advice. This cannot be a desirable outcome."

The SEC, not the Department of Labor, is the expert financial advice regulator. Congress designated the SEC to oversee and regulate the conduct of persons providing investment advice and effecting securities transactions in the United States.

While Labor Secretary Perez testified in June 2015 that the Department of Labor has coordinated with the SEC in the development of the proposed rule, there appears to be disagreement about the level of actual coordination. For example, SEC Commissioner Daniel Gallagher stated in his comment letter to the proposal that he was not included in any conversations. Commissioner Gallagher further commented that, "[f]rom a distance ‐‐ a place where a presidentially‐appointed SEC Commissioner should not be in this context ‐‐ it appears that any interaction between staffs at DOL and the SEC and all of these discussions with Chair White have borne no fruit."

The Department of Labor's rule does not contemplate or even mention potential SEC rules or the SEC's existing regime for regulating broker-dealers and investment advisers.

"Securities and Exchange Commission Chairwoman Mary Jo White told lawmakers Tuesday that if the agency proposes a rule to raise retail investment advice standards, it may not mesh perfectly with a separate Labor Department rule that will soon be finalized."

The Department of Labor's rule will disproportionately impact low and middle income families striving to save for retirement.

Source