Despite months of criticism from Democrats over the Labor Department’s proposed “best interests” investment advice standard, all but one of them on a House committee opposed a bill that would block the new rule.
The House Financial Services Committee still approved the measure Wednesday with Republican support. The vote was 34-25, with only one Democrat, Rep. David Scott (Ga.) siding with Republicans.
Bill sponsor Rep. Ann Wagner (R-Mo.) was furious with Democrats for not supporting the measure. Many of them voted for similar legislation in the last Congress and have since criticized the Labor Department for the proposed rule. She referred to the ‘No’ votes by committee Democrats this time around as “cowardly” political maneuvers.
The bill would prevent the implementation of DOL’s proposed rule mandating that most financial advisers meet a “best interests” standard when giving investment advice. Currently, some advisers are allowed to offer advice that results in higher commissions for them. Republicans, and many Democrats, are worried that if DOL disallows that practice, there will be fewer advisers and fewer options for low-income and middle-class families and individuals seeking basic investment guidance.
Wagner’s measure also calls on the Securities and Exchange Commission to craft a rule for financial advisers. In theory, the SEC is the more appropriate agency for such rules since it already regulates fiduciary issues.
Wagner said Democrats had been pressured from the left to steer clear of her bill. “It’s easy to tell people behind closed doors that it’s a terrible rule and have 96 people from the Democrats’ side of the aisle send letters and even grandstand at hearings,” Wagner said in an interview after Wednesday’s committee vote. “They’ve all been pressured by the White House, by Senator Warren, and again by Secretary Perez last night,” she said, referring to Labor Secretary Thomas Perez.
Rep. Lacy Clay (D-Mo.) is among the Democrats Wagner criticized. Despite repeatedly raising concerns about the regulations, he decided to vote against Wagner’s bill.
But he said he still doesn’t like the rule. “The rule dramatically changes the relationship between brokers and small investors,” Clay told Morning Consult on Wednesday, adding that the current arrangements seem to be working just fine.
But other Democrats delivered full-throated endorsements of the proposed regulations. Rep. Carolyn Maloney (N.Y.) said that mandating a high standard for anyone providing investment advice was a vital safeguard for anyone seeking financial guidance. “You have to put your customers’ interests first,” she said.
Rep. Stephen Lynch (D-Mass.) criticized the premise of Wagner’s bill, saying that the SEC was unlikely to take action on a fiduciary standard within a reasonable timeframe. “A rule from the SEC is not coming anytime soon,” he said. As if to illustrate his point, the committee overwhelmingly rejected an amendment to Wagner’s bill proposed by Lynch that would have required the SEC to take action within 60 days of the Labor Department publishing its final rule.
The pressure to allow the rule to go forward isn’t in a vacuum. The vote on Wagner’s legislation came a day after Brookings Institution economist Robert Litan resigned over a report he co-authored about the fiduciary standard. Sen. Elizabeth Warren (D-Mass.), who supports the Labor Department’s rule, accused Litan of producing a report critical of the rule because that point of view fit the interests of the company that funded the study. Litan insists that his findings were unbiased.
Democrats’ position on the issue is wobbly. Last week, 96 House Democrats sent a letter to the White House criticizing the rule and raising concerns that it would adversely affect middle- and low-income consumers’ access to investment advice.
The letter, first circulated by Rep. Gwen Moore (D-Wis.), asked the Labor Department to “consider options for convening a small working group of industry professionals and consumer advocates to aid with the finalization of the rule as to further ease any final implementation issues.” It stopped short of opposing the rulemaking effort altogether, however.
At the House Financial Services Committee markup Wednesday, Moore said that while she still has concerns about the regulation, she would not support Wagner’s legislation.
President Obama and Sec. Perez have said that the rule is a major priority of their tenures. Despite the vote’s approval in committee and Republican control of both chambers of Congress, the legislation has little chance of becoming law while Obama is still in office.