Disapproving Department of Labor Rule Related to Definition of the Term ``fiduciary''

Floor Speech

Mr. Speaker, I rise in opposition to H.J. Res. 88. This Congressional Review Act resolution of disapproval would undo the Department of Labor's final rule that simply ensures financial advisers act in the best interests of their clients with retirement funds.

Now, this is a Department of Labor rule that only applies to workers' retirement funds. In times past, people would retire and receive a defined benefit. They would just retire and get their promised income. But now, we have what are called defined contribution plans, where the money is invested and, over the years, if someone, even a modest-income person, invests over his 40-year career, he could easily amass a fund of hundreds of thousands of dollars, even $1 million if they start early and invest consistently.

So we are talking about people who may not have bought a single share of stock or a bond or mutual fund in their life, who walks into an investment adviser's office with all of the savings that could amount to as much as $1 million.

For far too long, certain financial advisers have been able to exploit loopholes in the decades-old regulation that governs investment advice for retirement savers. Right now, financial advisers can easily steer retirement clients towards financial products that may yield the adviser a big commission but may not be in their clients' best interest. Of course, not every financial adviser does this, but some do.

This unscrupulous practice of providing what is called conflicted advice insidiously erodes workers' retirement nest eggs. According to the White House Council of Economic Advisers, retirement savers lose $17 billion a year as a result of receiving conflicted advice about their retirement savings.

The Department of Labor recognizes the magnitude of this problem, and the department took action to protect workers' retirement savings. All told, they have been working on this issue for nearly 6 years. Over the past year alone, they conducted hundreds of meetings and provided the American public and industry representatives with nearly 6 months to weigh in on their proposal to fix the problem.

Secretary Perez and his colleagues listened to and repeatedly assured industry officials, Members of Congress, and other stakeholders that the final proposal would reflect the input that the department received and that the department would get the rule right. I believe the department did just that. The final rule addresses the legitimate concerns raised by Members of Congress, industry, and other stakeholders without compromising the main goal: ensuring that retirement clients receive investment advice that is in their best interest.

I am not alone in believing this. The broad and diverse coalition of stakeholders, including AARP, AFL-CIO, NAACP, National Council of La Raza, and many others have registered strong support for the rule.

But let's be clear: support for the final rule is not limited to those who represent and advocate for consumers and workers. Initial reactions to the final rule from Merrill Lynch Wealth Management, TIAA, Morgan Stanley, and others in the financial services sector have been positive and encouraging. Other companies appear to be reserving judgment on the rule until they better understand its full implications, and that is understandable.

But House Republicans have not reserved judgment. They have rushed to judgment in their opposition to the final rule. That is unfortunate because the final rule is a responsible solution to a real problem. The rule will help workers enjoy a dignified retirement, and this resolution would reject the rule.

Mr. Speaker, this resolution should be rejected for what it is: an effort to perpetuate an unacceptable status quo that allows some advisers to operate under a business model that puts their interests and their financial interests ahead of their clients' interests. We should protect workers' hard-earned retirement funds and reject this resolution.

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Mr. SCOTT of Virginia. Maxine Waters), the ranking member of the Committee on Financial Services.

(Mr. LEVIN asked and was given permission to revise and extend his remarks.)

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Mr. SCOTT of Virginia. Bonamici), a leader on the House Education and the Workforce Committee.
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Mr. SCOTT of Virginia. DeLauro), the ranking member of the Appropriations subcommittee with jurisdiction over the Department of Labor.
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Mr. SCOTT of Virginia. Maloney), who has worked hard on this issue.

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Mr. SCOTT of Virginia. Schakowsky), a strong consumer advocate.
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Mr. SCOTT of Virginia. Mr. Speaker, we possibly have two more speakers.

Will the gentleman from Tennessee advise me how many more speakers he has remaining.

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Mr. SCOTT of Virginia. Mr. Speaker, I include in the Record the Statement of Administration Policy. It notes that ``The outdated regulations in place before this rulemaking did not ensure that financial advisers act in their clients' best interest when giving retirement investment advice. Instead, some firms have incentivized advisers to steer clients into products that have higher fees and lower returns . . .'' Statement of Administration Policy

H.J. Res. 88--Disapproval of Department of Labor Rule on Fiduciary Responsibility of Financial Advisers--Rep. Roe, R-TN, and 30 cosponsors

The Administration strongly opposes H.J. Res. 88 because the bill would overturn an important Department of Labor final rule critical to protecting Americans' hard-earned savings and preserving their retirement security.

The outdated regulations in place before this rulemaking did not ensure that financial advisers act in their clients' best interest when giving retirement investment advice. Instead, some firms have incentivized advisers to steer clients into products that have higher fees and lower returns--costing American families an estimated $17 billion a year.

The Department's final rule will ensure that American workers and retirees receive retirement advice in their best interest, better enabling them to protect and grow their savings The final rule reflects extensive feedback from industry, advocates, and Members of Congress, and has been streamlined to reduce the compliance burden and ensure continued access to advice, while maintaining an enforceable best-interest standard that protects consumers. It is essential that these critical protections go into effect.

If the President were presented with H.J. Res. 88, he would veto the bill.

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Mr. SCOTT of Virginia. Mr. Speaker, we have two additional speakers, but they are not here yet.

I include in the Record a letter in opposition to the resolution, in support of the rule, from a long list of consumer organizations, as well as five pages of quotes from industry officials in support of the rule. Save Our Retirement, April 26, 2016. Re Oppose the Resolution to block DOL's final conflict of interest rule.

Dear Representative: As organizations that support the Department of Labor's (DoL) rule to update and strengthen protections for retirement savers, we are writing to urge you to oppose H.J. Res 88, the Resolution of Disapproval that would block its implementation. This rule is a tremendous accomplishment in the fight to improve our nation's retirement income security and should be supported.

The rule will at long last require all financial professionals who provide retirement investment advice to put their clients' best interests ahead of their own financial interests. By taking this essential step, the rule will help all Americans--many of whom are responsible for making their own decisions about how best to invest their retirement savings--keep more of their hard-earned savings so they can enjoy a more financially secure and independent retirement.

In promulgating this rule, the DoL engaged in an open and inclusive process, and the final rule is better as a result. Specifically, the DoL responded to congressional and industry feedback by making significant revisions designed to facilitate implementation and compliance, while minimizing the harmful impact of conflicts of interest on the quality of retirement investment advice.

Small account holders and moderate-income retirement savers stand to benefit most from this rule. The academic literature makes clear that it is the less wealthy, frequently financially unsophisticated retirement savers who are most at risk when it comes to investment recommendations that are not in their best interests. Often, those recommendations promote investment products with high costs, substandard features, elevated risks or poor returns. While the financial adviser may make a substantial profit off these recommendations, the retirement saver pays a heavy price for investment advice that is not in his or her best interest, amounting to tens or even hundreds of thousands of dollars in lost retirement income.

Strengthening the protections for hard-working Americans who try to save for a secure and independent retirement is a key priority for our organizations, and to its credit, the DoL has worked diligently to make important and needed changes to an outdated rule. We urge all Members of Congress to join us in supporting this common sense and long overdue initiative and to reject this effort to block its implementation. Your hardworking constituents deserve no less. Sincerely,

AARP, AFL-CIO, Alliance for Retired Americans, American Association for Justice, American Association of University Women (AAUW), American Federation of Government Employees, American Federation of State, County and Municipal Employees (AFSCME), Americans for Financial Reform, Association of University Centers on Disabilities, Better Markets, B'nai B'rith International, Center for Economic Justice, Center for Responsible Lending, Committee for the Fiduciary Standard;

Consumer Action, Consumer Federation of America, Consumers Union, Demos, International Association of Machinists and Aerospace Workers, International Brotherhood of Boilermakers, International Brotherhood of Electrical Workers, International Union, United Automobile, Aerospace, & Agricultural Implement Workers of America (UAW), Justice in Aging, Leadership Conference on Civil and Human Rights, Main Street Alliance, Metal Trades Department, AFL-CIO, National Active and Retired Federal Employees Association (NARFE), National Committee to Preserve Social Security and Medicare, National Consumers League;

National Council of La Raza, National Women's Law Center, OWL--The Voice of Women 40+, NAACP, National Education Association, Pension Rights Center, Public Citizen, Public Investors Arbitration Bar Association, Rebalance IRA, SAFER UMass Amherst (SAFER: A Committee of Economists and other Experts for Stable, Accountable, Fair and Efficient Financial Reform), Service Employees International Union (SEIU), Social Security Works, United Food and Commercial Workers, United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union (USW), U.S. PIRG, Woodstock Institute, Young Invincibles.

FINRA: The Financial Industry Regulatory Authority, the self-regulatory agency overseeing brokerage firms, was one of the most vigorous critics of the Labor Department's proposed fiduciary rule. The group ``filed one of the most pointed comment letters last summer about the proposed rule, which would require advisers to 401(k) and individual retirement accounts to act in the best interests of their clients,'' Investment News' Mark Schoeff Jr. reports. But the final rule gave big concessions to brokers, leading Finra's leader to effectively bless the new rule Friday. The organization's chair and chief executive Richard G. Ketchum told an audience at the Brookings Institution that the final rule is a ``big improvement.'' (Politico)

John Thiel, Head of Merrill Lynch Wealth Management: ``We are pleased that Secretary Perez and the Department of Labor staff have worked to address many of the practical concerns raised during the comment period. Most important, we support a consistent, higher standard for all professionals who advise the American people on their investments. As we study the details of the final rule, we hope to continue what has been a constructive dialogue with the Department about how to implement a best interest standard effectively and efficiently for the benefit of our clients, advisors and shareholders.'' (WSJ)

TIAA: ``Putting the customer first is a core TIAA value, and we believe adhering to a best interest standard under the Department's new regulation is an important way to help more people build financial well-being. IRAs are a key part of creating retirement security, so we agree with the requirement that distribution advice be subject to the same fiduciary standard as all other investment advice. This will ensure that rollover discussions, including whether to roll over from an employer-sponsored plan to an IRA, are always in employees' and retirees' best interest. Based on our preliminary analysis, it appears the Department has gone a long way toward making the best interest standard the industry standard. TIAA supports this direction, and we look forward to reviewing the full rule.'' (Statement)

LPL Financial Holdings Inc., which provides brokerage services to more than 14,000 independent advisers, said it was pleased with the Labor Department's changes to the fiduciary rule. ``In particular, we are encouraged by the increased time frame for implementation, the ability to easily enter into the best interest contract with our existing clients, and the freedom to recommend any assets that are appropriate to help investors save for retirement''. (WSJ)

Ray Ferrara, Chairman and CEO, ProVise Management Group: ``It's quite workable,'' says Ferrara, whose practice serves many small businesses and mid-level investors in the retirement space. ``Under the best interest contract exemption, firms and advisors can continue to receive commissions for the sales of financial products and for the advice and services they provide--they just have to make sure that the commissions are reasonable and that their advice is not influenced by the level of compensation they receive.'' (www.provise.com)

Jim Weddle, Managing Partner, Edward Jones: ``We've been adapting to new rules forever. The difference this time is that our compliance with the new rule will also grow the public's trust and confidence.'' (Statement)

Morgan Stanley: ``Putting clients' interests first is a core value of Morgan Stanley. While it will take some time to analyze all of the rule's details, we have been planning for it since it was initially proposed and have been making investments in the systems and technology that will enable us to offer compliant solutions to clients whose retirement accounts are affected.'' (Investment News)

Financial Planning Coalition: ``The Financial Planning Coalition opposes any effort by Congress to thwart the Department of Labor's final fiduciary rule, which reflects extensive public comment and articulates common-sense standards for ensuring financial advice in consumers' best interest. Initial reactions from many financial services firms and professionals--across business models--have been largely supportive and focused on implementation rather than opposition. We strongly urge Congress to step back, respect the comprehensive feedback process, and not to interfere with final implementation of this important rule to benefit millions of American retirement savers.'' (Statement)

Financial Engines: ``The new conflict of interest rule is an important step forward in our nation's retirement security and has the potential to positively impact retirement investors, regardless of their wealth or investing experience,'' said Larry Raffone, president and chief executive officer of Financial Engines. ``Financial Engines has always believed that it is not only possible, but absolutely necessary, for retirement advisors to provide un- conflicted advice and guidance to their clients. That's why we've made a point of operating as a fiduciary for our clients since founding 20 years ago.'' (Statement)

National Association of Insurance and Financial Advisors: ``NAIFA members and others within the insurance and financial services industry worked diligently with the Department of Labor to address many concerns we had with the DOL's draft rule,'' said Jules Gaudreau, president of the National Association of Insurance and Financial Advisors. ``We appreciate that DOL has accepted many of NAIFA's suggestions and reworked some portions of the rule to address concerns raised during the review process.'' (Statement)

The Rebalance IRA Investment Committee (Dr. Charles D. Ellis, Dr. Burton G. Malkiel, Scott Puritz, Managing Director, Mitch Tuchman, Managing Director, and Jay Vivian): As members of the financial advisor community, we are writing to express our appreciation for the leadership and hard work that you have devoted to the fiduciary duty rule just released by the U.S. Department of Labor. This extraordinarily important reform will protect millions of hard working Americans from the conflicts of interest that annually siphon away billions of dollars of hard-earned retirement savings due to inflated commissions and poor returns. (Letter)

Karen Barr, CEO, Investment Adviser Association: ``The IAA is pleased to see that the Department of Labor clearly recognizes that many advisers already commit to providing high-quality advice that always puts their client's best interest first. We have long believed that the fiduciary standard should be applied to all financial professionals giving investment advice. Our members, SEC-registered investment advisers, are already held to that standard. The IAA is also pleased to see that--based on preliminary information--the DOL appears to have taken many of our most significant concerns with the proposal into account. For example, the IAA and others commented that the proposal appeared to favor low-fee and low-cost--typically passively managed--investments over all else, ignoring returns, quality, and other factors that may be important to investors. The DOL expressly acknowledges that it did not adopt the low-fee streamlined option considered in the proposal because of that concern, and further clarified that the adviser is not required to recommend the lowest fee option if another investment is better for the client. These are welcome changes. We also welcome the DOL's clarifications on the timing of fiduciary status, as it appears that the final rule makes it clear that ``hire me'' discussions that do not include investment recommendations are not fiduciary recommendations.'' (Statement)

Jon Stein, CEO, Betterment: ``We support this rule for a lot of reasons. We've actually been engaged and involved with the Department of Labor and the OMB for a while supporting this rule,'' Stein told CNBC's ``Closing Bell.'' ``It's an unambiguous public good. This is one of the most exciting things to happen for investors in 40 years.'' (Business Insider)

Triad Advisors: ``We're in the process of reviewing the details of this recently finalized rule, but one thing is clear: Delivering maximum choice and flexibility in business and compensation models to independent advisors is more crucial than ever before. We're confident that our firm's focus since we were founded on supporting hybrid advisors uniquely positions Triad Advisors to best serve the evolving needs of independent advisors in this new regulatory landscape. We're also encouraged on a preliminary basis with modifications from previous versions of the rule in its final version, which seem to reflect the willingness of the DOL to listen to our industry and the investing public on a range of key issues.'' (Statement)

Legg Mason: Jeff Masom, co-head of sales for asset manager Legg Mason Inc. said the Labor Department had ``certainly made a lot of concessions'' including giving firms more time to comply and grandfathering in existing investments. While the rule is likely to require ``a lot of time and expense'' from intermediaries, Mr. Masom said Legg Mason is optimistic about the impact of the rule on its business. He said the firm benefits from not offering retirement plan record- keeping services and being a ``pure'' investment manager with a mix of products, some of which are low-cost. ``Competing with passive has always been on the table. Active managers always has to justify their fees. Nothing has changed on that front,'' Mr. Masom said. (WSJ)

Cetera Financial Group: ``Cetera has been aware of the broad brush strokes of the DOL rule for some time now, and we have been actively positioning our advisors to transition this situation from an obstacle to an opportunity. We have been utilizing our industry-leading scale and resources to develop multiple new tools and platforms to prepare our advisors for how to best operate their businesses and enjoy continued success in this new regulatory environment. Preliminarily, it appears the rule includes modifications that indicate the DOL has considered some of the industry's concerns. However, we will be studying the newly released details of the final rule in the coming days, and from there, we will announce a number of our initiatives to support advisors in this area in the coming weeks.'' (Statement)

Jason C. Roberts, CEO, Pension Resource Institute, and Partner, Retirement Law Group: ``Based upon our initial review, we believe that many of the challenges in the proposal have been modified to be more workable. We are sifting through the details but are generally encouraged-- particularly with the lower bar for fee-based IRA rollovers and the extended timeline for implementation. We will be begin updating PRI's member firms next week and start developing the required forms, agreements, disclosures, policies and training in the coming months.'' (Investment News)

Morningstar: Scott Cooley, direct of policy research at investment-research and investment-management firm Morningstar Inc., said: ``One of my fears was that people who had already had paid a commission on their retirement accounts would be moved into fee-based accounts and then have to pay 1% of assets a year after they had already paid a commission.'' But the DOL has ``indicated that it would have to be in the best interest of the client to shift them to a fee-based account from a commission-based account. That's unambiguously pro-consumer.'' Mr. Cooley also said that because the final rule incorporates the financial-services industry's comments, ``It will be harder for people in the industry to argue that the DOL didn't take their feedback into account. I suspect the DOL drafted this with an eye towards potential court challenges.'' (WSJ)

Evensky & Katz: Harold Evensky, chairman of financial- advisory firm Evensky & Katz who champions the fee-only, fiduciary approach to financial advice and planning and who has long supported the rule, said: ``The DOL has indeed taken a major step toward a more secure and dignified retirement for millions of Americans. In addition, the DOL has obviously carefully listened and responded to the concerns raised by many financial service participants regarding the original proposal including easing the compliance process but maintaining a strong, legally enforceable best interest standard.'' He added: ``At this stage it seems that the Department of Labor's years of effort will be a major win for investors.'' (WSJ)

RBC Capital Markets: In an unexpected positive change for the industry, RBC Capital Markets said in a research note, the requirement that financial advisers enter into a separate fiduciary contract with customers when dealing in the retirement area got scrapped. Another positive: The Labor Department expanded the universe of 401(k) and other retirement plans that would be exempt from the new rule. The draft proposal would have covered plans under $100 million in assets, while the final rule drops that threshold to $50 million. RBC said annuity companies including Lincoln, MetLife and Prudential ``would still see a negative hit to variable annuity sales--although the impact would likely be slightly less than if the draft had been left unchanged.'' (WSJ)

UBS Group: Scaling back aspects of the rule will likely boost the stocks of the very firms most affected by the tighter restrictions, a team of researchers at UBS Group AG said in a research note. ``While the thrust of the rule remains unchanged and we still see longer-term headwinds, we believe the rule's softening could provide a relief rally in many of the most impacted stocks including asset managers, life insurers and [independent broker-dealers],'' the UBS researchers wrote. They based their analysis on a fact-sheet distributed by the Obama administration. (WSJ)

Bob Gerstemeier, President, Gerstemeier Financial Group: ``The responsibility of putting my clients' interests first will have little impact to the way I operate,'' he says. ``Ultimately, I think the new regulations requiring advisors to make more disclosures and put clients' interests first will not only make our profession better, it will ensure that more Americans receive competent, trusted and appropriate advice.'' (www.provise.com)

Guild Investment Management ``At Guild, which is an SEC- registered investment advisor, we have adhered to fiduciary standards for our entire life as a firm (more than four decades), and we certainly welcome the expansion of these standards, which we view as simple and fair common sense.'' (www.equities.com)

Rob Foregger, Co-founder, NextCapital: Rob Foregger, co- founder of Next Capital, says the Labor Department ``made very sensible amendments to the proposed rule. The final result strikes the right balance.'' ``The new DoL fiduciary rule is a major step forward for the modernization of the $17 trillion retirement industry--and perhaps the largest overhaul to the investment management industry in nearly three decades,'' he added. ``The DoL went to great lengths to integrate the productive feedback from the financial industry, while ensuring that a true fiduciary standard of care was enacted.'' (www.nasdaq.com)

United Capital: The Labor Department's fiduciary rule is an important step in providing more disclosure to investors, but ``this should really be viewed as a step one,'' says Terry Siman, a lawyer and a managing director with wealth- management firm United Capital Financial Advisers LLC who has supported the rule. ``It takes a long time to make the cultural shifts'' of moving the industry toward providing greater transparency, he said. Mr. Siman added the new rule would give retirement savers a boost by putting their interests ahead of advisers, while also empowering them to ask for more information around costs and conflicts of interest. ``The consumer ultimately will benefit, it's just going to be first and foremost the responsible consumers who know'' to ask their advisers for that additional information,'' said Mr. Siman. (WSJ)

Andrei Cherny, CEO, Aspiration: ``I've seen first-hand that the wheels of government can move slowly--especially when there are thousands of lobbyists and many millions in campaign contributions working against progress. But the new fiduciary role from the Department of Labor is a big step in the right direction. The financial industry is one of the least trusted in America--for some very good reasons. Too often, conflicts of interest lead to a `heads I win, tails you lose' game where people's very livelihoods are on the line.'' (Statement)

Wells Fargo: ``Wells Fargo has been an active advocate for our clients and financial advisors during the DOL's rule- making process. We have a robust plan in place for reviewing the final rule, which we hope will reflect the suggestions that we and others have offered in order to avoid unintended negative impacts on investors. Wells Fargo has long supported a best interest standard and believes that professional financial advisors have a crucial role to play in encouraging retirement saving and investing. As one of the largest and strongest financial services companies, we enjoy a distinct advantage in our ability to adapt to this change.'' (Investment News)

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Mr. SCOTT of Virginia. Mr. Speaker, there are two points that I would like to make. One is that when all you can complain about is the size of the bill, you know you have a very weak argument.

Second, they mentioned the United Kingdom. As I understand the United Kingdom plan, they banned commissions, so it is not the same thing. This rule will allow commissions if those commissions are in the best interests of the consumer.

Mr. Speaker, last week the Committee on Education and the Workforce hastily marked up this joint resolution only 48 hours after it was introduced. This week the House majority has rushed it to the floor for a vote, only 21 days after the rule was published. According to the Congressional Research Service, that is one-fifth of the average time between the time a final rule is issued or published and when the CRA vote occurs.

If anyone has concerns about the rule, those concerns can be addressed to the Department of Labor, and the Department can issue clarifications and guidance. But instead of reserving judgment and seeking clarification, this resolution is offered and would have the effect of not only rejecting this rule, but any similar rule in the foreseeable future.

This joint resolution may pass the House today and may pass the Senate next month, but the President will veto it. There are not the votes to override the veto, so that is simple arithmetic. We are just wasting our time.

Instead of wasting time on this sure-to-be-vetoed joint resolution, the House should be helping working people make ends meet and better provide a future for their children and grandchildren. We should be taking up legislation that would boost workers' wages, help workers achieve a better balance between work and family, level the playing field by strengthening protections from discrimination so everyone has a fair shot, and strengthening workers' ability to have a safe and secure retirement. All of that will be the focus of House Democrats.

For now, I urge my colleagues to protect workers' hard-earned retirement funds by voting ``no'' on this resolution.

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Mr. SCOTT of Virginia. Mr. Speaker, on that I demand the yeas and nays.

The yeas and nays were ordered.

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