Patrick McHenryChairman

Washington, April 6, 2016 -

WASHINGTON – Financial Services Committee Chairman Jeb Hensarling (R-TX) made the following statement after the Department of Labor issued the final version of its controversial “fiduciary” regulation that will harm millions of lower and middle income Americans by raising the costs of financial planning:

“Millions of Americans turn to financial advisors to help them plan and save for retirement, to send a child to college or to start their own small business.  These are some of the most personal and consequential decisions families make.  Now, here comes Washington with burdensome regulations totaling more than 1,000 pages that will make that retirement advice more costly and complicated.  This is Obamacare for your IRA and 401(k), and just like Obamacare this complex rule will likely raise your costs and potentially limit your choices.  The rule will hurt those Americans with low and middle incomes – ultimately jeopardizing their financial independence and retirement security.

“At a time when there is, regrettably, little that both parties agree on, many Republicans and Democrats in Congress have been vocal in their opposition and concerns about this rule.   That is why the Financial Services Committee and the House passed the Retail Investor Protection Act, introduced by Rep. Ann Wagner, with bipartisan support last year.  This bill would have stopped the Department of Labor from finalizing its harmful rule until the Securities and Exchange Commission (SEC) acts on the issue.  The SEC is the expert agency that Congress designated to oversee and regulate the conduct of those providing investment advice, yet the Obama administration chose to bypass the independent SEC on this matter and defer to an agency that has no expertise over the capital markets. As a result, the Administration failed to properly take into account the harm this rule will have on Americans with low and moderate incomes, and the SEC chair has warned us that this lack of coordination could result in conflicting rules.

“Congress must act to stop this costly, complicated and potentially conflicting rule that’s unfair to millions of American families who only want the freedom to plan for financial independence and the right to shape their own destiny.”

Background

During five hearings and a markup, the Financial Services Committee learned:

• The supposed basis of the Department of Labor’s proposal -- that investors are losing $17 billion a year due to conflicts of interest -- does not withstand even minimal analytical scrutiny.  There is no study that directly supports this estimate, and it appears to be based upon generalizations and extrapolations that are not fully supported by empirical data.

"The calculations underlying these numbers misinterpret and incorrectly apply the findings of the very same academic research cited as the foundation of the claims, and do not consider the significant harm to retirement savers that is sure to result if the Department adopts the rules as currently drafted.  In fact, these assertions do not stand up when tested against actual experience and data.” - Paul Schott Stevens, President and CEO of the Investment Company Institute

• The Department of Labor’s Regulatory Impact Analysis also appears to have omitted the costs of the loss of financial advice to investors.  Even the Department of Labor itself, in a 2011 report, estimated that consumers who invest without professional advice make investment errors that collectively cost them $114 billion per year – far exceeding the purported benefit of the rule.  Using the Labor Department’s own report, implementing a rule that could limit access to financial advice would create costs that far exceed its presumed benefits.

• The United Kingdom (UK) implemented a similar rule for “conflicted financial advice” in 2013.  Within two years, the rule had created an advice gap in which 60,000 investors were unable to receive financial advice. As a result, the UK’s government initiated a review of the extent to which financial advice for smaller investors is being diminished by the rule.

• A report from Cass Consulting on the impact of the UK’s initiative noted that it has left aside those “who have too few assets to merit attention from professional advisers, though they may well be in need of financial advice. This cannot be a desirable outcome.”

• The SEC, not the Department of Labor, is the expert financial advice regulator.  Congress designated the SEC to oversee and regulate the conduct of persons providing investment advice and effecting securities transactions in the United States.

• While Labor Secretary Perez testified in June 2015 that the Department of Labor has coordinated with the SEC in the development of the proposed rule, there appears to be disagreement about the level of actual coordination.  For example, SEC Commissioner Daniel Gallagher stated in his comment letter to the proposal that he was not included in any conversations.  Commissioner Gallagher further commented that, “[f]rom a distance ‐‐ a place where a presidentially‐appointed SEC Commissioner should not be in this context ‐‐ it appears that any interaction between staffs at DOL and the SEC and all of these discussions with Chair White have borne no fruit.”

• The Department of Labor’s rule does not contemplate or even mention potential SEC rules or the SEC's existing regime for regulating broker-dealers and investment advisers.

“Securities and Exchange Commission Chairwoman Mary Jo White told lawmakers Tuesday that if the agency proposes a rule to raise retail investment advice standards, it may not mesh perfectly with a separate Labor Department rule that will soon be finalized.”

• The Department of Labor’s rule will disproportionately impact low and middle income families striving to save for retirement.

“First and foremost, we continue to be very concerned that the DOL has proposed a rule that will severely restrict African Americans’ and low- to moderate-income Americans’ ability to save for retirement.  The new regulations also will make it more difficult for our members – as small business owners – to sponsor retirement savings plans for themselves and for the benefit of their employees.” – National Black Chamber of Commerce

“As a result of the proposed rule, African American families will have less opportunity to achieve their retirement goals because the lower-cost commission-based services they benefit from today will no longer be available for IRAs." – Ivan Earle, Chairman of Primerica’s African American Leadership Council