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Congressman Proposes Bill Delaying New Broker Regulations

January 25, 2017

Congress is considering a bill to delay the federal government’s implementation of an Obama administration rule tightening regulations on how retirement investment advisors may serve consumers.

Congress is considering a bill to delay the federal government’s implementation of an Obama administration rule tightening regulations on how retirement investment advisors may serve consumers.

In January, U.S. Rep. Joe Wilson (R-SC) introduced House Resolution 355, the Protecting American Families’ Retirement Advice Act.

If approved by lawmakers and signed into law by President Donald Trump, HR 355 would delay implementation of the fiduciary rule, a regulation on consumer investment brokers, by two years.

The U.S. Department of Labor’s “fiduciary rule” increases the cost of complying with federal investment regulations. Before the regulation took effect, investors were held to a “suitability standard,” requiring a “reasonable basis to believe that the recommendation is suitable for a particular customer.” The new rule, which took effect in June and is scheduled to be implemented in April 2017, effectively requires investment advisers to charge consumers fees for investment transactions, instead of receiving commissions for advice.

More Rules, More Costs

Wilson says the investment regulation is an example of government overreach.

“The Department of Labor is telling financial advisers and financial planners that they are responsible, but they already know that,” Wilson told Budget & Tax News. “It denies people with average incomes the ability to have financial planners and causes the costs to go through the roof for [advisors] to comply.”

Wilson says the regulation will increase costs and paperwork for financial planners, costing consumers more and reducing access to services.

“You’re denying services and you’re delaying services, because you’re increasing costs,” Wilson said. “It’s classic government overreach. I’m really pleased that immediately we’ve picked out 25 cosponsors from across the country and coast to coast. And this is just the beginning.”

Increases Exposure to Lawsuits

Thaya Knight, an associate director of financial regulation studies at the Cato Institute, says the fiduciary standard exposes financial planners to more lawsuits and more paperwork.

“Fiduciary duty exposes you to liability for lawsuits, if you’re found to have certain conflicts of interest,” Knight said. “The fiduciary standard is that you have to conduct your client’s affairs in a way a prudent person would conduct their own affairs, and there are certain things you have to be able to show, to prove you are doing that.”

‘Breathing Room’

Knight says giving the rule “some breathing room” and delaying implementation would benefit everyone involved.

“I think that the two-year window will give the Labor Department, the new president, and the industry some breathing room,” Knight said. “It is possible that a new Labor Department secretary will come in and say that they want to repeal this rule. If you have a two-year window, it is possible to get the rule repealed before it even becomes effective.”

Author
Michael McGrady writes from Colorado Springs, Colorado.
mmcgrady@uccs.edu

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