Delaying a Rule Creating Conduct Standards for Investment Brokers and Dealers (H.R. 1090)

What is H.R. 1090?

(Updated July 13, 2017)

This bill would prohibit the Secretary of Labor (DOL) from prescribing any regulation that defines an individual as a fiduciary until 60 days after the Securities and Exchange Commission (SEC) issues a final rule governing standards of conduct for brokers and dealers. Being defined as a fiduciary requires a person to hold assets in trust for another person, and manage those assets for the benefit of the other person rather than their own.

The SEC would be prohibited from issuing a rule that establishes an investment advisor standard of conduct as the standard of conduct of brokers and dealers before it reports to relevant congressional committees on the following issues:

• Whether retail investors and other customers are being harmed due to brokers or dealers operating under different standards of conduct than those that apply to investment advisors;

• If any alternative remedies that will reduce confusion or harm to retail investors due to brokers or dealers operating under different conduct standards;

• Whether adoption of a uniform fiduciary standard for brokers or dealers and investment advisors would adversely impact their commissions and the availability of proprietary products offered by brokers and dealers, as well as the ability of brokers and dealers to engage in principal transactions with customers;

• Whether the adoption of a uniform fiduciary standard for brokers or dealers and investment advisors would harm retail investor access to personalized, cost-effective investment advice and recommendations.

The SEC would be required to:

• Publish in the Federal Register formal findings that the rule would reduce retail customer confusion or harm due to standards of conduct applicable to brokers, dealers, and investment advisors;

• Consider the differences in the registration, supervision, and examination requirements that apply to brokers, dealers, and investment advisors when proposing rules.

Argument in favor

The Dept. of Labor needs to be stopped from allowing this rule to take effect as it isn’t clear that it will help actually help consumers or if there’s other, better options available.

Argument opposed

This bill just slows down the process of implementing this change that will help consumers, and requires the SEC to conduct redundant studies.

Impact

Brokers and dealers who would be governed by the same standards as investment advisors once the rule takes effect, relevant congressional committees, the DOL, and the SEC.

Cost of H.R. 1090

The CBO estimates that this legislation would not impact federal spending.

Additional Info

In-Depth: Sponsoring Rep. Ann Wagner (R-MO) introduced this legislation to prevent the hasty implementation of regulations she believes are unnecessary and may harm average investors:

“Earlier this week, President Barack Obama and Senator Elizabeth Warren (D-MA) presented a solution in search of a problem by proposing another massive rulemaking from Washington that will harm thousands of low and middle income Americans’ ability to save and invest for their future. This top-down, Washington-centered rulemaking against financial advisors and broker dealers will harm the very middle income families that Senator Warren and President Obama claim to protect.

In order to prevent Senator Warren and President Obama from harming middle income Americans, today I introduced the Retail Investor Protection Act (RIPA) in the United States House of Representatives. Americans should be given more freedom to seek sound financial advice without Senator Warren and President Obama’s interference.”

Critics of this legislation say that it would slow an already ponderous process of implementing the DOL’s regulation: Barbara Roper, who is the Director of Investor Protection for the Consumer Federation of America, points out that:

“What Rep. Wagner’s bill would do is stop DOL in its tracks while it waits for the SEC to catch up. In addition, it would impose new study requirements on the SEC, which has studied this issue to death, in order to further slow and complicate an already glacial regulatory process.”

Media:

• Sponsoring Rep. Ann Wagner (R-MO) Press Release
• CBO Cost Estimate
• ThinkAdvisor
• Huffington Post (Opposed)

Summary by Eric Revell
(Photo Credit: Flickr user Tax Credits)