House holds stacked hearing to attack retirement savings rule proposal

The House Financial Services Committee is holding a typically stacked hearing -- one consumer-side witness against four Wall Street-backed lobbyists  -- to attack the important retirement savings rule proposed by the Department of Labor. The rule simply requires retirement advisors to put the customer's needs  -- not their own compensation -- first.

Consumer alerts

Right now, the House Financial Services Committee is holding one of its typically stacked hearings — one consumer-side witness against four Wall Street-backed lobbyists (although some of these are in the nominally “small business” category) to attack the important retirement savings rule proposed earlier this year by the Department of Labor. The rule simply requires retirement advisors to put the customer’s needs  — not their own compensation — first. It’s called a fiduciary standard. Fiduciary standard is not as complicated a concept as it sounds. The proposed rule and the need for it were explained simply and clearly by reporter Tara Siegel Bernard in her excellent New York Times explainer on the proposal — and the fight against it– entitled “Making Brokers Toe the Mark,” which appeared back in February when the draft rule was rolled out to the public.

U.S. PIRG is a member of the coalition fighting to protect the rule. So are AARP, Consumer Federation of America and Americans for Financial Reform.

In 2010, the investment industry used its massive political power and was able to outright kill a similar DOL proposal. This time, the industry’s strategy is to delay the Department of Labor proposal until the Securities and Exchange Commission (SEC) takes action, as would occur if a committee bill from Rep. Anne Wagner (MO), HR 1090, were to become law. While the Wall Street-backed bill has some bi-partisan support, consumer advocates on the committee led by Keith Ellison (MN) and Maxine Waters (CA) are defending the proposal and giving PIRG ally Professor Mercer Bullard, the sole consumer-side witness at the hearing, a chance to correct the record after some of the wild claims from the Wall Street witnesses. You can watch the hearing here (or its archive). Here is an excerpt from Mercer’s prepared testimony:

“In summary, I do not support H.R. 1090. As discussed in Part I.A, Section 2 would prevent the Department from completing its long overdue rulemaking by making that rulemaking contingent on prior, unrelated rulemaking by the Securities and Exchange Commission (“SEC” or “Commission”) under Section 913 of the Dodd-Frank Act. Investors would continue to experience losses resulting from financial advisers’ incentives to make recommendations that are not in investors’ best interest, with no guarantee that the Commission would ever adopt rules under Section 913. As explained in Part IB, it is unreasonable to make any rulemaking contingent on SEC action in view of the SEC’s longstanding rulemaking paralysis. Section 3 of H.R. 1090 would require unnecessary, redundant and burdensome reports and analysis by the Commission and would be inconsistent with APA principles of notice and comment, as I discuss in Part I.C. I strongly support the Department’s proposal and urge Congress to take proactive steps to help the Department finalize its rulemaking. The Department’s proposal to treat financial advisers who make investment recommendations to investors as fiduciaries will help protect investors from abusive sales practices and conflicted compensation arrangements. Fiduciary status will cause broker-dealers and financial advisers to violate certain prohibited transaction rules as a result of conflicted compensation arrangements that make the amount of an adviser’s compensation depend on the recommendation made by the adviser. However, the Department has proposed exemptions from the prohibitedtransaction rules that are both workable for the industry and effective in protecting investors.”

Wall Street has ramped up massive, mythic arguments against the rule. One of its witnesses, Mr. Paul Schott Stevens, CEO of the powerful special interest known as the Investment Company Institute (ICI), appears in his oral responses to have even brazenly misrepresented the authority of the SEC over retirement accounts. It would be very odd if he is not aware that that it has none, zero, nil. That’s why the proposed rule was drafted by the Department of Labor, which does have authority over retirement savings and investments.

Wall Street interests, led by the Securities Industry and Financial Markets Association (SIFMA) and ICI, plus a phalanx of their members, including the kingpins of the life insurance industry, have launched a massive lobbying, PR and campaign contribution campaign against the rule. ICI is even replying to my tweets, so at least we’ve got their attention. Their efforts even include an astroturf website that looks a lot like (but doesn’t include the same facts as) the pro-rule site, again, that’s the one backed by Americans For Financial Reform, AARP, Consumer Federation of America, Better Markets and other reformers including U.S. PIRG. Here’s some info from our site:

Thanks to loopholes in the rules that govern advice about retirement investing, banks, brokers, mutual fund companies, and insurance agents are able to portray themselves as trusted advisers while acting as self-interested salespeople. They can recommend investments with higher fees, riskier features, and lower returns because they earn more money, even if those investments are not the best choice for you. That means that the financial professionals you turn to for advice can end up costing you many thousands of dollars in lost retirement savings.

It’s as simple as that. Read our detailed U.S. PIRG comments on the proposed regulation here. PIRG members have also submitted 7,000 comments of their own. Finally, check out Labor Secretary Tom Perez’s recent blog on the proposed rule. It includes a short youtube video explaining the rule with a whiteboard.


Ed Mierzwinski

Senior Director, Federal Consumer Program, PIRG

Ed oversees U.S. PIRG’s federal consumer program, helping to lead national efforts to improve consumer credit reporting laws, identity theft protections, product safety regulations and more. Ed is co-founder and continuing leader of the coalition, Americans For Financial Reform, which fought for the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, including as its centerpiece the Consumer Financial Protection Bureau. He was awarded the Consumer Federation of America's Esther Peterson Consumer Service Award in 2006, Privacy International's Brandeis Award in 2003, and numerous annual "Top Lobbyist" awards from The Hill and other outlets. Ed lives in Virginia, and on weekends he enjoys biking with friends on the many local bicycle trails.