Stopping the DOL’s New Fiduciary Rule is Another Reason Congress Must Pass the Financial CHOICE Act

On September 13th, the House Financial Services Committee passed Chairman Jeb Hensarling’s (R-TX) Financial CHOICE Act (H.R. 5983) by a vote of 30-26. This bill represents a major first step to completely repeal the Dodd-Frank Act of 2010, which codifies “too big to fail” policy, raises the cost of providing loans, suffocates local community banks with overregulation, and created the unaccountable Consumer Financial Protection Bureau (CFPB). The central component of the CHOICE Act frees banks from excessive federal regulation if they chose to absorb more of their own risk, thus mitigating the potential for bank bailouts.

While this is the main piece of the CHOICE Act, the bill also includes a very important provision that would stop the Department of Labor’s (DOL) new fiduciary rule by requiring the Securities and Exchange Commission (SEC) to act first on any fiduciary rulemaking decision. This makes sense considering Congress gave the SEC, not the DOL, the authority to oversee the actions of investment advisers.

The DOL finalized their new fiduciary rule earlier this June despite opposition from the business community and many members of Congress. The rule expands the definition of “fiduciary” under the Employee Retirement Income Security Act (ERISA) to include all retirement financial advisers. Once this rule is implemented, all retirement advisers must operate under a higher and more costly “fiduciary” standard that requires advisers to put their individual client’s interest above their own. Currently, retirement advisers can operate under a more flexible “suitability” standard.

While this may sound nice, in reality this rule imposes many problems for advisers and their investors. First, retirement financial advisers are already regulated under federal law. Imposing this one-size-fit all approach undermines individual choice and assumes the federal government knows best. Second, advisers who want to stay in business already put their client’s interest ahead of their own. Imposing a fiduciary rule will only increase litigation for good advisers trying to do the right thing and prevent them from providing high-risk, high-reward investment advice for fear of being sued. Third and last, this costly new regulation will increase the cost of employing an adviser and discourage advisers from charging clients based on individual transactions. This ultimately hurts low-income investors who can’t afford the higher costs.

Congress can fight back against the DOL’s new fiduciary rule by passing the Financial CHOICE Act. Doing so would not only help end bank bailouts and unleash the economy, but it would also stop the DOL from undermining the ability of investors and their retirement financial advisers from freely making decisions without government playing mom and dad.

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