June 10, 2016 at 5:00 am ET
In the face of President Obama’s unprecedented executive and regulatory overreach, Congress and the American people have all too often been reduced to the status of spectator. Time and time again, lawmakers have been unable to stop damaging new regulations from taking effect.
In theory, one firewall against Presidential overreach is the Congressional Review Act, a legislative procedure that allows Congress to review and overturn regulations. In practice, this procedure does not work – any CRA passed out of Congress can (and almost always is) vetoed by the president absent a two-thirds majority.
No regulation demonstrates this powerlessness more than the fiduciary rule, a Department of Labor regulation finalized earlier this year despite strong opposition. Leaders in Congress like Rep. Anne Wagner (R-Mo.) and Rep. Peter Roskam (R-Ill.) pushed for more realistic regulations with bipartisan support only to be rolled by the Obama Department of Labor. The House and Senate even passed a CRA resolution against the fiduciary rule, but this was always going to be vetoed by the president.
Given this failure, other efforts to stop regulatory overreach should be supported. Last week, a coalition of business groups filed a lawsuit to block the fiduciary rule in the U.S. District Court for the state of Texas. This drastic action is justified, and indeed desperately needed given the disregard Obama has shown in pushing the fiduciary rule.
The importance of this lawsuit lies not only with blocking regulatory overreach, but also with correcting a flawed rule that will restrict access to financial advice for savers across the country.
The rule creates a “best interest” standard of conduct that investment advisors must meet when representing the interests of their clients. While there is broad agreement amongst industry groups and consumers that such a standard should exist, the mandates associated with the existing rule are so broad and lack clarity that they are open to wide interpretation. Some economists have even warned the standard is an “open-ended obligation with seemingly no bounds.”
Further, the 1,000 page rule was rushed through without a cost- benefit analysis and by an activist agency that does not have jurisdiction over this area. Rightfully, this area should be regulated by the Securities and Exchange Commission, which has enforcement and examination authority. But because DOL does not have this authority it will have to rely on other agencies for enforcement. Indeed, because the standard is so vague, this may mean regulatory chaos when issues of the rule arise in the months and years to come.
This combination of vague standards and an absence of clear regulatory jurisdiction will likely have devastating effects on access to retirement advice.
Compliance costs associated with the rule will be immense for the industry, especially smaller advisors that do not have the economies of scale that large advisors do. These compliance costs will be disproportionately passed onto low and middle-income families who may lose their broker of choice or be priced out of the market entirely.
Although there has been no official in-depth analysis of the rule, some have predicted it may result in up to 7 million IRA holders being priced out of investment advice and result in 300,000 to 400,000 fewer IRAs being opened every year. All told, some fear this regulation could result in more than $80 billion in lost savings.
This ill-conceived rule must be repealed or struck down. Leaders in Congress have already worked tirelessly for years to stop the fiduciary rule and ensure a common-sense standard is implemented, but these efforts have yielded few results. Given this failure, conservatives should continue fighting any efforts to stop Obama’s regulatory overreach. Lawsuits like the one brought forward by industry leaders to block the fiduciary rule should be vigorously supported as an alternative, and possibly last chance to stop this crushing new set of regulations.
Norquist is president of Americans for Tax Reform, a taxpayer advocacy group he founded in 1985 at President Reagan’s request.