On Tuesday night, the House of Representatives passed a bill to prevent the Department of Labor from proposing a rule that would expand the scope of fiduciary duty in retirement accounts. The bill, H.R. 2374, prohibits the Department of Labor from issuing a proposal until 60 days after the Securities and Exchange Commission issues a final rule on standards governing broker-dealers.
Advisers working under a fiduciary standard must put their clients' best interests ahead of their own. Studies have shown that investors have no idea that stock brokers or advisers to their retirement plan can -- and do -- suggest investments that benefit themselves more than the investor.
The SEC is not required to pass a rule on a fiduciary standard. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 mandated that the SEC study whether or not investors would benefit from a higher standard of care, a fiduciary standard. They studied the issue and reported back to Congress in 2011 that investors would indeed benefit. Yet here we are.
The bill passed by the House, incredibly named the Retail Investor Protection Act, puts up extra hurdles for the SEC to clear before the SEC can change the standard under which brokers currently work, including qualitative and quantitative cost-benefit analyses.
The Financial Planning Coalition denounced the bill in a press release yesterday. The group, made up of the Certified Financial Planner Board of Standards, the Financial Planning Association and the National Association of Personal Financial Advisors, sent a letter to Congress urging them to oppose the bill that would delay the development of fiduciary rules crucial to investor protection.
"We do oppose this bill because it seems to want to delay or prevent progress on the fiduciary rulemaking at the SEC and the Department of Labor," says Karen Nystrom, director of advocacy at the Financial Planning Association.
One of the fears expressed by critics of an expanded fiduciary standard is that it would prohibit brokers from being paid by commission. The DOL has repeatedly expressed that the rule would allow for commissions, and many advisers already operate under a fiduciary standard while being paid on commission -- including members of the Financial Planning Association.
"Many of our members operate voluntarily under fiduciary standard of care regardless of their compensation method," says Nystrom. "At FPA we have a code of ethics and standard of care that promises to put the client first. Our members have extremely high ethical standards. We support a fiduciary standard of care because it’s the right thing to do for the client and the investors."
On Monday the White House released a Statement of Administration Policy criticizing the bill and noted that advisers to the president would recommend a veto if the bill is passed by the Senate.
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Senior investing reporter Sheyna Steiner is a co-author of "Future Millionaires' Guidebook," an e-book written by Bankrate editors and reporters. It's available at all the major e-book retailers.