President Obama is likely to see the implementation of a major new rule aimed at protecting retirement savings before he leaves office, despite opposition from the financial industry and several Republicans and Democrats.
Even as members of Congress on both sides of the aisle rally against the proposed rule to crack down on conflicts of interest in financial advising, industry lobbyists opposed to it and its supporters now expect that the final rule will be issued without major changes. The comment period for the Labor Department’s rule, which saw intense lobbying by the financial services sector, ended Thursday.
It’s “clear to say they want this in on their watch,” said Jill Hoffman, vice president of government affairs for investment management at the industry group the Financial Services Roundtable. Hoffman warned at the same time that the timeline for putting the rule in place is “impossible” for businesses.
The rule would require retirement advisers to act in the best interests of their clients, maintaining what is known as a “fiduciary” relationship. Currently, many kinds of advisers who help savers with IRAs or insurance products do not face that requirement.
Along with liberals like Sen. Elizabeth Warren, D-Mass., Obama has portrayed the rule as a necessity to ensure the ability of middle class people to save for retirement. Many advisers, Obama’s economic team has found, steer clients into high-fee financial products in return for compensation. Such “kickbacks,” in Warren’s words, cost savers $17 billion every year in missed financial gains, by the administration’s calculations.
Obama has described the need for the rule in stark terms, suggesting that many advisers’ businesses today depend on “bilking hard-working Americans out of their retirement money.”
The industry has countered that the requirements would make it unprofitable for many advisers to serve clients, especially small businesses, as they could be subject to lawsuits for talking to savers about investing even in general terms. The result, they argue, is that many people would lose access to human advisers capable of talking them through tricky situations and addressing their unique personal circumstances.
The industry’s outreach and lobbying in Congress has had notable effect, especially among members of Obama’s own party. Ahead of Thursday’s comment deadline, at least 90 members of the Democratic House caucus signed onto a letter circulated by Rep. Gwen Moore, D-Wis., criticizing the rule, according to the industry publication InsuranceNewsNet.
Reaching out to Democrats has been a key strategy for business representatives who know that the administration will not be swayed by Republicans alone, and who are likely to obtain some measure of relief on technical aspects of the rule.
“The Department of Labor needs to see that there is bipartisan support to make changes to the rule, and right now there are a number of Democrats out there that are concerned about the rule, and the impact it is going to have on small businesses,” said Andres Gil, director of the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness.
Nevertheless, the White House and Department of Labor are not expected to be daunted by Democratic opposition. They are “very in sync on their discussions about what needs to happen for a robust middle class here in America,” said Kathleen McBride, chair of the Committee for the Fiduciary Standard and a supporter of the rule. “I would say they’re very conscious of the timeline, and probably very much thinking about this in terms of legacy.”
Hoffman likewise agreed that Congress was not likely to block the rule with legislation. The House Financial Services Committee is expected to advance legislation that would effectively stop the rule, and language curbing the rule’s effects has been attached to an appropriations bill.
But Hoffman predicted that “anything that is going to make this rule work for the marketplace is not going to pass Congress” in large part because of Democratic support for the rule in the Senate, as well as the threat of a veto.
The Obama administration has been working hard behind the scenes to ensure that bipartisan concerns would not stop the rule. In particular, Labor Secretary Thomas Perez has been “actively lobbying and effectively lobbying Democrats on the Hill,” said one financial services lobbyist.
A spokesman for the department said that “Secretary Perez has continuously engaged members of Congress throughout this process. Congressional input is an important part of every notice and comment rulemaking, and the department appreciates the many sincere and constructive interactions we have had with members.”
If, as both sides expect, the rule goes into effect late this year or early next year, it could be in effect before Obama leaves office. That timeline, businesses have complained, is not sufficient to allow for firms to update practices and software.
At that point, “we’ll almost certainly see a legal challenge,” said Barbara Roper, director of investor protection at the Consumer Federation of America.
