Hearing of the House Education and the Workforce Committee - Opening Statement of Rep. Scott, Markup on the Affordable Retirement Advice for Savers Act

Hearing

This morning, we are marking-up H.R.2823, the so-called Affordable
Retirement Advice for Savers Act.
Today's Committee action represents yet another attack on the Obama
Administration's fiduciary rule, which simply ensures that financial
advisors act in the best interests of their retirement clients.
In February 2016, Committee Republicans rushed to judgment and
marked-up two bills seeking to replace the Obama Administration's
fiduciary rule two months before it was even finalized. Those bills did
not come to the floor for a vote.
Then, in April 2016, Committee Republicans hastily considered a
Congressional Review Act joint resolution of disapproval nullifying the
fiduciary rule less than two weeks after it was finalized and published in
the Federal Register.
Consideration of H.R. 2823 is actually the fifth Committee hearing or
mark-up aimed at criticizing or eliminating the fiduciary rule in the past
two years alone.
That's five more hearings or mark-up than we have held on increasing
the minimum wage, five more hearings than we have held on providing
for paid family and medical leave, five more hearing than we have held
on protecting older workers from discrimination, five more hearings
than we have held on strengthening OSHA's whistleblower protection
law, and five more hearings than we have held on protecting coal miners
pensions.
The bill being marked-up today repeals the fiduciary rule and proposes a
far weaker, loophole-ridden standard that unscrupulous advisors could
easily skirt by simply issuing boilerplate written disclaimers or
disclosures.
For advisors to be subject to the fiduciary requirement under H.R. 2823,
they must render investment advice for a fee pursuant to 1) `written
acknowledgement' of the fiduciary obligation; or 2) `a mutual
agreement, arrangement, or understanding' that it is `individualized' to
the retirement client and the retirement client `intends to materially rely'
on the advice.
This framework is similar to the 1975 regulations, which were replaced
by the fiduciary rule because the regulations were widely recognized as
deficient and not applicable to the current retirement savings landscape.
But the bill does not simply turn back the clock and reinstitute portions
of regulations that were issued when employer-based 401(k) plans did
not exist and the IRAs had just been established.
The bill also includes loopholes for unscrupulous advisors to avoid
fiduciary obligation as long as a written disclaimer is provided saying --
and I quote from page 5:
"This communication is not individualized to you, and you are not
intended to rely materially on this communication in making investment
or management decisions." Close quote.
What this means in real terms is that retirement clients could have every
reason to believe that they and their families were receiving personalized
advice and they could rely entirely on this advice in making the biggest
financial decision of their lives. Yet, under the bill, unscrupulous
advisors would not have a fiduciary obligation as long as they supplied
the required boilerplate disclaimer.
Under H.R. 2823, financial advisors would be able to avoid fiduciary
obligations if they indicate and disclose in writing that they are acting in
a -- quote -- "marketing or sales capacity." Close quote.
The legitimate concern is that advisors would be able to provide an
unlimited amount of advice to their clients as long as they provide a
written disclosure that they are only providing advice in a "marketing or
sales capacity."
Under H.R. 2823, financial advisors would be able to avoid fiduciary
obligations if they claim to have made a "good faith" error or omission
in their disclosure to their clients. This seems problematic, as who is the
arbiter of "good faith?"
At least with the deficient 1975 regulations that the bill resembles, once
advisors became fiduciaries, they could not disclaim away their
fiduciary obligation. That is not the case with H.R. 2823.
If all of this sounds familiar, it is because these provisions and loopholes
I've described were included in the legislation our Committee marked-
up in February 2016 before the fiduciary rule was finalized.
I will give my Republican Committee colleagues some credit for their
consistency. However, while Committee Republicans' opposition and
proposed alternative to the fiduciary rule remains the same as it was
before the rule was finalized, it's not February 2016 anymore.
The fiduciary rule is final now, and it was initially implemented last
month. We have some sense of what has been happening in the
retirement marketplace in response to the fiduciary rule.
And what we have seen so far does not appear to confirm the opponents'
claims and doomsday scenarios that have been made for years.
In fact, we have seen the opposite.
We have seen the financial services industry adapting to and seemingly
capably complying with the fiduciary rule.
Investment firms and advisors appropriately planned over the past year
and incurred the up-front compliance costs to be ready for the fiduciary
rule when it was initially implemented -- and we have not heard much
disruption. One official at Wells Fargo Advisors said she would liken
the June 9th initial implementation date of the fiduciary rule to "...Y2K.
We did a lot of preparation and a lot of work for a day that ended up
feeling a lot like any other day."
We also have seen the financial services industry innovating and,
according to Morningstar, "adapting in ways that will benefit investors
by reducing conflicts of interest and adding transparency."
We have seen courts in three separate jurisdictions reject plaintiffs'
arguments against the rule. A federal district court in Kansas found that
any delay through injunction will "produce a public harm that outweighs
any harm that plaintiff may sustain from the rule change."
And most importantly, since the rule was initially implemented last
month, financial advisors are now required to be fiduciaries to their
retirement clients. All working Americans are just now beginning to
receive retirement investment advice that's in their best interests.
H.R.2823 would eliminate these protections for workers and return us to
the days when investment advisors could easily rip-off their retirement
clients.
We should reject this bill and instead commit ourselves to ensuring the
fiduciary rule is implemented on schedule and in its present form.
I thank the Chair and yield back.

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