House Hearing Debates Fiduciary Proposal
A congressional subcommittee hearing
Dec. 2 gave voice to the conflicting perspectives on the Department of Labor’s (DOL) fiduciary proposal, though it seems unlikely that anyone’s perspective was changed.
The hearing, “Principles for Ensuring Retirement Advice Serves the Best Interests of Working Families and Retirees,” which the Subcommittee on Health, Employment, Labor, and Pensions of the U.S. House of Representatives’ Education and the Workforce Committee held, heard testimony from four witnesses. Three were adamantly opposed to the DOL’s fiduciary proposal, one just as adamantly in favor of its implementation. The backdrop for the hearing was a bipartisan set of principles offered in November
to help guide the DOL’s effort, and embodied in a legislative proposal under development by Reps. Phil Roe (R-Tenn.), Richard Neal (D-Mass.), Peter Roskam (R-Ill.), Michelle Lujan Grisham (D-N.M.), Earl “Buddy” Carter (R-Ga.) and John Larson (D-Conn.), and a hearing by this same committee on these issues earlier this year.
Most of the Subcommittee members made at least an appearance at the hearing, which ran 30 minutes beyond its scheduled 90-minute length. Democrats present seemed focused on two aspects: the need for reform in a 40-year-old law, and trust that the DOL, and specifically Secretary of Labor Tom Perez, not only had heard the concerns expressed about the current proposal, but could be trusted to address them in the final proposal. For Republicans present, comparisons between the DOL’s proposal and the impact of other “big government” solutions (notably Dodd-Frank and the Affordable Care Act) were inescapable, and largely negative.Witnesses
Marilyn Mohrman-Gillis, Managing Director, Public Policy and Communications, of the Certified Financial Planner Board of Standards, Inc., spoke on behalf of the Financial Planning Coalition (the CFPB Board, the Financial Planning Association and the National Association of Personal Financial Advisors). She basically echoed the DOL’s talking points
in supporting its proposal. However, she took pains to reference the CFP Board’s own experience in implementing a fiduciary standard of conduct in 2007, and the CFP Board’s Standards of Professional Conduct, which though she maintained were “similar to the BIC exemption” are arguably less intrusive and exhaustive disclosures than incorporated in the current BIC proposal.
Mohrman-Gillis noted that when they undertook those changes, critics had predicted many of the same outcomes forecast for the DOL’s proposal: that advisors would withdraw from serving the market, particularly middle-income, that the broker-dealer business model would be eliminated, and that advice would be more expensive. She said these assertions amounted to “misinformation and speculation,” and results that she maintained did not occur with their undertaking. “The sky did not fall,” she asserted. Throughout the Q&A that followed witness testimony, she continued to maintain that their rejection of the notion that the DOL’s proposal would have vastly negative outcomes was grounded in their actual experience, rather than “speculation.”
On the other hand, the perspectives shared in opposition to the rule were varied and effective: Brad Campbell, now with Drinker Biddle, but a former Assistant Secretary of Labor (though speaking on his own behalf, and not on behalf of his firm or a client); Rachel Doba, a small business owner from Indianapolis, Ind. (who funded the establishment of her small engineering firm with proceeds from liquidating her 401(k) from a former employer); and Jules Gaudreau, President of the Gaudreau Group, Inc., in Wilbraham, Mass. (a firm his grandfather formed in 1931).Campbell noted
a previous economic analysis that asserted that the lack of access to investment advice cost retirement plan participants “more than“$100 billion per year,” and maintained that “Congress, rather than a single federal agency” was the appropriate means of determining the standards that would be applied across “the different bodies of law and regulation applicable to different types of financial advisors.” He also noted the discriminatory impact of the fiduciary proposal for small business owners.
Doba, a small business owner speaking on behalf of the U.S. Chamber of Commerce, echoed those concerns
. With regard to her current plan (15 workers) and advisor, she said, “I am convinced that without the financial advisor most of my employees would not participate in the 401(k) plan and would not receive the benefit of the matching contribution.” She went on to express confusion about the reasoning behind the proposal. “I have a trusted advisor that has provided great service, which has allowed me to provide retirement security for my employees and me. This proposal puts all of that in jeopardy,” she said. She went on to express frustration with the lack of a seller’s carve-out for small businesses (as there is for larger employers in the proposal), the potential impact of moving the line between education and advice, and the increased cost and decreased access to advice that would result from compliance with the BIC.
Gaudreau, like Campbell, supported a legislative rather than regulatory solution
, particularly in a scenario in which we won’t know how the final DOL proposal responded to concerns until it was actually final. He supported the bipartisan principles outlined, and criticized the DOL’s current proposal, noting that, “A workable best interest standard that protects investors should not require opening the door to unrestrained litigation when investment performance goes south,” and that “the cost of defending against a meritless lawsuit is steep and that cost will add significantly to the cost of getting good retirement savings advice.” He also cited as concerns the “vast and expensive data collection and disclosure requirements on both financial advisors and their financial institutions” in the current proposal “without regard to whether the retirement saver will benefit from this overload of information, and equally without regard to whether the financial advisor has any access to the data required.” He noted that, “the DOL proposal places too much emphasis on an investment product’s cost, stating that “our national policy on retirement savings must avoid a ‘one size fits all’ focus on cost to the virtual exclusion of these other important factors,” such as cost and access.
In closing the hearing, Chairman Roe took to task the $17 billion figure included in the DOL’s economic analysis as “not a real number.” Moreover, he asserted that, “a crook is a crook, no matter what you call him. Bernie Madoff was a fiduciary.” He drew a comparison to the impact of Dodd-Frank, noting that in a recent walk through a bank in his Tennessee district, there were “more compliance officers than bankers.”
Ranking Member Jared Polis reaffirmed the sense that few in his party were likely to embrace a legislative solution to the fiduciary issue, but also reiterated his earlier call for another comment period after the DOL shares the product of its hearing and comment period process. He said an additional comment period would lead to a “better rule” and “continue transparency.”
After the hearing, the DOL distributed a statement citing the $17 billion figure that was criticized in the hearing as “the cost of continued inaction.” The statement went on to say that, “Ironically, the efforts by some members of Congress jettison the transparency and inclusiveness they correctly demanded, instead favoring a process of closed-door deliberations dominated by lobbyists and industry insiders. As a result, we should expect a product that is ultimately less protective of middle-class retirement savers,” going on to say that “members of Congress who are genuinely interested in protecting the savings of America’s workers should wait to see the results of the Department’s incredibly open and thorough process before proposing legislation on this issue.”
All in all, it was a hearing that didn’t seem to have much listening.