The White House is preparing to unveil new rules meant to tighten restrictions on financial advisers offering guidance on Americans’ retirement savings accounts.
The pitch, outlined in a White House memo obtained first by The Hill, comes after the financial industry has worked for years to delay a rule being pushed by the Department of Labor that would change how investment advisers are paid.
{mosads}For years, progressives have raised concerns that the same financial advisers and investment dealers who help Americans with their IRA and 401(k)s are also pocketing commissions while making sales that aren’t in the best interests of their clients.
But the business community has vehemently rebutted the allegations, arguing that the industry is rooted in trust and organized to allow for low-income Americans to get the same financial advice as the wealthy.
A White House official told The Hill there were “no updates regarding potential Department of Labor fiduciary rules or policies.”
“Per standard process, if we move forward with a proposed rule, we will follow standard practice and process for [a notice of proposed rule making], including publication in the Federal Register, followed by a comment period after publication,” the official said.
Department of Labor assistant secretary Phyllis Borzi has pushed for expanding “fiduciary duty” regulations for investment advisers who help people in the United States decide where to put their retirement savings.
For months, Borzi has been readying new rule proposals, having delayed them from last year until early this year. The memo is a sign that more senior administration officials are aligning with her, two sources who oppose the new rules said.
Supporters, including the AARP and most progressive financial groups, argue that consumers aren’t aware of the commissions their advisers earn when getting them to enroll in retirement plans that could be risky.
Industry groups have vehemently pushed back against such proposals, arguing that the regulations would end up hurting the same lower-income Americans that the administration wants to help.
That’s because the regulations would change the payment model from a commission-based model to on one that relies more on a fee-based model, lowering the financial incentive for broker-dealers to take on lower-income accounts.
“This memo is cherry picked with facts,” said one financial services industry insider who opposes the plan. “This is another sign that the president isn’t working toward bipartisanship and wants to placate Sen. Elizabeth Warren and the Warren-wing of the Democratic Party.”
According to a White House memo written earlier this month, senior administrators were briefed about “conflicts of interests” for broker-dealers who give financial advise.
The memo was authored by Council of Economic Advisers (CEA) chairman Jason Furman and CEA member Betsey Stevenson.
The 2010 Dodd-Frank Wall Street reform law requires the Securities and Exchange Commission (SEC) to investigate whether implementing a fiduciary standard for the industry would be in consumers’ best interests.
But Borzi has pushed Labor Secretary Thomas Perez to issue its own regulations, arguing that DOL also has authority.
Republicans and centrist Democrats, spurred on by the business community, have raised concerns that the two agencies could ultimately decide on two different fiduciary standards, further muddying industry practices.
The House passed legislation in October 2013 requiring DOL to wait to issue its rules until after the SEC unveils its rule, which many in the industry expect would not negatively impact the payment system.
The legislation, introduced by Rep. Ann Wagner (R-Mo.) passed on a 254 to 166 vote, with 30 Democrats joining Republicans to pass the bill.
At the time of the vote, the industry had hoped for enough Democratic support to force the Senate to take up the legislation. The upper chamber, then controlled by Democrats, did not take up the bill.
Wagner said that she plans to reintroduce similar legislation this Congress “soon” to “combat this harmful rule.”
“While the Department of Labor claims this rulemaking will remove conflicts of interest for financial advisers, it will in fact increase costs to individuals and families saving for retirement,” Wagner told The Hill. “It will shut out millions of low and moderate income Americans from being able to receive financial advice.”
In March 2013, the Congressional Black Caucus (CBC) sent a letter to DOL officials citing concerns that the rule changes would hurt minority communities.
Many of the same members — including Rep. Maxine Waters (D-Calif.), the top Democrat on the House Financial Services Committee — ended up voting against Wagner’s legislation.
A senior aide to a Democrat on the CBC said that “sending a letter urging the Department of Labor to keep the impact on minority communities top of mind during its rulemaking is a far cry from Ms. Wagner’s legislation.”
The aide said Wagner’s legislation “would dictate when — and even if — the Department could issue such a rule, and then subject it to additional avenues for legal challenge by the industry.”
This story was last updated at 7:31 p.m.