The House of Representatives on Tuesday passed a bill that aims to block a Department of Labor (DOL) proposal that would raise the standards for financial professionals who provide retirement investment advice.
Also known as the Retail Investor Protection Act, H.R. 1090 passed the House by a vote of 245-186. The legislation, which was introduced by U.S. Representative Ann Wagner (R-MO) in February, would stop the DOL from finalizing its proposed fiduciary rule until the Securities and Exchange Commission acts on the issue.
“The U.S. House of Representatives stood up for low- and middle-income investors today by passing the Retail Investor Protection Act,” Rep. Wagner said in a written statement. “The Obama Administration and the Department of Labor believe that the American people need to be protected from themselves, that they are not smart or capable enough to control their own retirement savings.”
The DOL proposal has been hotly contested, with supporters saying the rule would protect 401(k) and IRA investors by mitigating conflicts of interest in the retirement investment marketplace, whereas the opposition has argued that the rule would make professional retirement investment advice either unavailable or unaffordable for many Americans.
“The fiduciary rule will take away investment advice from hundreds of thousands, if not millions of low and moderate income people all around the nation who rely upon this advice to save for retirement,” said Rep. Jeb Hensarling (R-TX), who chairs the House Financial Services Committee, in a prepared statement.
The DOL, however, begs to differ. The agency says that the rule would require retirement advisers to put their clients’ best interests before their own profits.
“This boils down to a very simple concept: if someone is paid to give you retirement investment advice, that person should be working in your best interest,” said Secretary of Labor Thomas E. Perez in a prepared statement issued in April when the bill was proposed.
Ultimately, the DOL proposal aims to protect investors from “backdoor” payments and hidden fees in retirement investment advice. Included in the proposal is a package of proposed exemptions allowing advisers to continue receiving payments that could create conflicts of interest if the conditions of the exemption are met.
“The proposed ‘best interest contract exemption’ represents a new approach to exemptions that is broad, flexible, principles-based and can adapt to evolving business practices,” according to the DOL. “It would require retirement investment advisers and their firms to formally acknowledge fiduciary status and enter into a contract with their customers, in which they commit to fundamental standards of impartial conduct.”
This includes giving advice that is in the customer’s best interest and making truthful statements about investments and their compensation.
“As common-sense as this may be, laws to protect consumers and ensure that financial advisers are giving the best advice in a complex market have not kept pace,” said Perez in a statement. “Our proposed rule would change that. Under the proposed rule, retirement advisers can be paid in various ways, as long as they are willing to put their customers’ best interests first.”
Written by Jason Oliva