U.S. efforts to boost financial advisers’ accountabilty to retirement-plan participants would be slowed under a measure advanced by House lawmakers today as part of a package of revisions to the Dodd-Frank Act.
The House Financial Services Committee approved four bills, including one that would make a Labor Department rule enhancing the fiduciary duty of advisers to plans such as 401(k)s or IRAs contingent on the issuance of an overlapping rule by the Securities and Exchange Commission.
The legislation, which would need approval from the full House and Senate as well as President Barack Obama, would slow Labor Department efforts to issue a revised proposal after brokerages said an earlier version would cause them to drop millions of accounts. The agency, which is ahead of the SEC in writing its rule, had planned to issue it this year.
“Neither the SEC nor DOL have considered the serious, adverse consequences that would befall retail investors if these rules move forward,” said Representative Ann Wagner, a Missouri Republican who wrote the House legislation. There is no companion measure in the Senate, she said.
Wagner’s bill passed 44 to 13, with 13 Democrats supporting it. Thirty-two House Democrats, including 29 members of the Congressional Black Caucus, last week urged the Labor Department to narrow the scope of its latest proposal.
Retail investors typically rely on brokers or investment advisers to help guide investment decisions. A 2011 SEC study said consumers are often baffled by the distinction between brokers and advisers, who work under different standards. The study recommended a common fiduciary standard for those who provide personalized investment advice to retail clients.
Brokers earn commissions on sales and work under a professional standard that requires them to promote investments that are suitable for an investor. Registered investment advisers work for set fees and have a fiduciary duty to provide advice in the best interest of customers.
The SEC has been working on its plan for nearly three years, and Commissioner Elisse B. Walter recently said it wouldn’t be finished this year. In March, the SEC asked the industry and other stakeholders for details on the costs and benefits of requiring brokers to be held to a fiduciary standard.
Wagner’s bill would prevent the Labor Department from issuing its standard until 60 days after the SEC finishes its rule. It would also create new hurdles for the SEC to act, including having to show that retail customers are systematically disadvantaged by the current standard.
“The premise of this bill -- that the DOL should not be able to act on its own authority to protect retirement plan participants until the SEC acts -- that’s just ridiculous on its face,” Barbara Roper, director of investor protection for the Consumer Federation of America, said in a phone interview.
The committee today also approved a bill that would repeal the Public Company Accounting Oversight Board’s authority to require companies to rotate audit firms. The bill passed the committee unanimously.
Some PCAOB members have questioned the decades-long relationship between some companies and their auditors, and said term limits could help improve the quality of audits. The European Union also is considering plans to force banks and large listed companies to rotate the auditors they use.
“It is the board of directors, management and shareholders who should ultimately make the decision about which accounting firm should audit a public company’s financial statements, not the PCAOB in Washington,” Representative Jeb Hensarling, the Texas Republican who leads the Financial Services Committee, said today.
Two other bills approved today would repeal Dodd-Frank provisions affecting private-equity firms and public companies. One would repeal the SEC’s authority to write a rule requiring public companies to disclose the ratio of the chief executive officer’s compensation to the median total pay of all employees.
The other would curb the Dodd-Frank requirement for some private-equity fund advisers to register with the SEC. Those who advise funds with outstanding debt that is less than two times their invested capital would be exempt under the bill.
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