Retail Investor Protection Act
Department of Labor's Fiduciary Rule:
‘A Solution in Search of a Problem'
In April 2015, the Department of Labor proposed new fiduciary rules under the Employee Retirement Income Security Act (ERISA) of 1974 to apply to any financial advisor providing investment advice for a retirement account. At the same time, the SEC is considering using permissive authority granted under Section 913 of Dodd-Frank to adopt a "uniform fiduciary standard" for both brokers and investment advisors. Up to this point, the lack of coordination between the two agencies in preparing and issuing their regulations has been a cause of great concern.
Ultimately, there is concern that both of these rules, especially from the DOL, will end up with unintended consequences, thereby increasing costs and pricing low- and moderate-income Americans out of the financial advice market by making it less cost-effective to service small accounts.
The DOL's first fiduciary proposal in 2010 received broad bipartisan opposition by Members of Congress as well as industry stakeholders, and ultimately the proposal was withdrawn in 2011.
One study pointed out that the rule could have increased costs to owners of individual retirement account (IRA's) by up to 195%, and that millions of IRA owners could be shut out of the financial advice market.
Letters were sent out by members of the Congressional Black Caucus, the New Democrat Coalition, several Senators of both parties, and several Republican members of the House Financial Services Committee.
The Retail Investor Protection Act
The Retail Investor Protection Act would prohibit the DOL from issuing new fiduciary rules under ERISA unless the SEC first issues a rule under Section 913 of Dodd-Frank.
Before issuing a rule for a uniform fiduciary standard, the SEC would have to provide a report to the House Financial Services and Senate Banking Committee on whether current standards are a source of investor harm and whether such a rule would limit access to financial advice.
Additionally, as part of the report the SEC would be required to look at alternative remedies to a uniform fiduciary standard that would address investor confusion, including simplifying titles used by professionals and enhancing disclosures.
If any new regulation is needed in this space, it should be made by the SEC, which has experience and jurisdiction in overseeing broker-dealers and investment advisors. Meanwhile, the DOL has no experience in overseeing this market.
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