The House of Representatives’ Committee on Financial Services approved a bill yesterday that, should it become law, would delay the rule making process currently underway at the Department of Labor on the definition of a fiduciary. The Retail Investor Protection Act (H.R. 2374), which passed the committee by a 44-13 vote, prevents the Secretary of Labor from prescribing any regulation under ERISA defining the circumstances under which an individual is considered a fiduciary until 60 days after the Securities and Exchange Commission issues a final rule relating to standards of conduct for brokers-dealers under Section 913 of the Dodd-Frank Act. That section of Dodd-Frank authorizes the SEC to issue rules to extend the fiduciary standard of conduct applicable to investment advisors to broker-dealers when providing advice about securities to retail customers.
H.R. 2374 requires the SEC to conduct some analysis before moving forward with issuing its final rule on its definition of fiduciary. Specifically, the legislation requires the SEC to:
• determine whether retail customers are being systematically harmed or disadvantaged because broker-dealers are held to a standard different from that which applies to investment advisors;
• identify whether the adoption of a uniform fiduciary standard of care for broker-dealers and investment advisors would adversely affect retail investors' access to personalized investment advice; and
• consider the differences in the registration, supervision, and examination requirements applicable to broker-dealers and investment advisors.
The practical effect of the bill, should it become law, would be to slow down the rulemaking process at both the SEC and the DOL on the definition of a fiduciary.
However, it remains to be seen how much momentum this legislation has in Congress. In addition to the Committee on Financial Services, the bill has also been referred to the House Education and Workforce Committee, which has jurisdiction over ERISA and the DOL. Members of that committee could be skittish about making the DOL dependent on the SEC with regard to this issue. Also, it is unlikely that the Senate has the appetite to pass legislation affecting rules that have yet to be written.
The ASPPA Government Affairs team is closely monitoring legislative developments in this area, and we will continue to be engaged with members of Congress to gauge how they plan to proceed.
Andrew J. Remo is ASPPA’s Congressional Affairs Manager.
