House Committee Approves Bill Repealing the Fiduciary Rule
The House Education and the Workforce Committee approved legislation July 19 that would repeal the Department of Labor’s (DOL) fiduciary regulation.
Not surprisingly, the 23-17 vote in support of the Affordable Retirement Advice for Savers Act
(H.R. 2823) fell along party lines. The bill was introduced June 8 by committee member Rep. Phil Roe (R-TN), and has 26 Republican co-sponsors.
According to a summary of the bill
, it amends ERISA and the Internal Revenue Code to establish a statutory definition of “investment advice” to ensure that all financial professionals providing personalized advice about retirement investments, distributions or the use of other advisors are legally required to act in the best interest of their clients.
The bill defines “investment advice” more broadly than DOL’s 1975 regulation, expanding the universe of activities that are subject to fiduciary liability. Under the bill, a fiduciary relationship occurs any time an advisor provides one of a broad array of recommendations relating to retirement accounts. The relationship occurs when there is an acknowledgement of fiduciary status or a mutual agreement that the advice is personalized and that the advice recipient intends to materially rely on the recommendation when making decisions about plan assets.
The bill also prohibits an advisor from disclaiming a mutual agreement unless the advisor makes certain explicit disclosures and an objective person would reasonably conclude there was no mutual agreement. Under the bill, advice would be exempt from the prohibited transaction rules as long as only reasonable compensation is paid and certain disclosure requirements are met. The bill also amends the tax code to provide an exemption from the prohibited transaction rules if, among other requirements, an advisor places the interest of the client above the advisor’s own.
Before the vote, Committee Chair Virginia Foxx (R-NC) said that there were bipartisan complaints about the version of the fiduciary rule finalized last year and that it was “unworkable and so complicated.” However, ranking member Bobby Scott (D-VA) said that the bill would allow “unscrupulous advisers to avoid fiduciary obligation as long as a written disclaimer is provided.”
Meanwhile, the DOL continues to review the potential implications of the regulation, to review responses to its RFI on a potential delay in the regulation, and to work with the Justice Department in responding to litigation regarding the regulation’s legality.