Date: 2015-10-27
Speaker: JACKSON LEE (democrat)
Chamber: H

Mr. Speaker. there are comments on this floor that said we had to listen to those who came. I want to stand and listen to the hardworking Americans who ultimately will retire. I am tired of blocking good measures that protect them. such as the Labor Departments efforts to strengthen protections for working families and retirees by requiring their financial professionals who provide retirement investment advice be treated as fiduciaries under ERISA laws. It is important to note that this is a simple requirement. It does not undermine the responsibilities or the profits of brokerdealers and others. It just simply says that they must be held to a standard to protect those retirees who have worked so very hard. I oppose the underlying bill. H.R. I am also glad to stand on the floor and support. however. H.R. 597. the ExportImport Bank Reform Reauthorization Act. finally to open the Bank and create jobs and opportunities for so many. Again. let me say that I am standing with those workers who are not here. retirees who have worked. hardworking Americans who will have their investments protected. by making sure that those who give them advice are regulated and held to very high standards. Mr. Speaker. I rise in opposition to H.R. 1090. the Retail Investor Protection Act. I oppose this bill. because it would undermine efforts to curb conflicts of interest in the marketing and development of retirement investments. particularly for retail investors. I support the efforts of individuals and businesses to succeed in the American economy. Unfortunately for too long the success of some is coming at the total disregard for the rights of workers and their families. Investments in a home. savings placed in retirement accounts or into 401ks are ways for working people to ensure that they will not live in poverty when they retire. This bill would prevent the Department of Labor from addressing disparities in how the rights of investors are protected. Brokerdealers trade securities for themselves or on behalf of their customers. and they typically charge a commission fee for each transaction and may also be compensated with a commission from the company whose securities they trade. In making recommendations to clients and conducting transactions. they must adhere to "suitability" standards that ensure that their recommendations are suitable to the clients financial situation and objectives. Investment advisers. meanwhile. who manage the employee retirement and benefit plans for private companies. must under the Employee Retirement Income Security Act (ERISA. PL 93406) adhere to higher "fiduciary" standards and take actions that are in the best interests of the participants. Among other things. such investment advisers must act solely for the interests of participants and beneficiaries and for the exclusive purpose of providing benefits and paying plan expenses. They also must act prudently and avoid conflicts of interest. Investment advisers are paid through an annual flat fee for managing the investments. which is based on the size of the plan. Brokerdealers are regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) under the suitability standard. while investment advisers are regulated more directly by the SEC under the higher fiduciary standard. While employee retirement benefit plans are managed by investment advisers. individuals also invest on their own for retirement and other purposes and often use either investment advisers or brokerdealers to help them decide on investments and to perform the trades in stock or investment instruments. The 2010 DoddFrank Act required the SEC in Section 913 of the act to report on the standards of care applicable to brokerdealers and investment advisers. and it authorized the SEC to issue rules to extend the fiduciary standard now applicable to investment advisers to brokerdealers when providing any advice about securities to retail customers. According to the Financial Services Committee. in 2011 the SEC released a staff study recommending that both brokerdealers and investment advisers be held to a fiduciary standard "no less stringent than currently applied to investment advisers." This past April. the Labor Department. acting under ERISA. proposed new rules regarding who is covered by ERISAs fiduciary standard and how that standard would be applied. saying that more needed to be done to protect individuals who are trying to invest and save for retirement. The proposed rule would treat all financial advisers who provide retirement investment recommendations and make trades on behalf of clientsincluding brokerdealers dealing with individual IRAs. 401(k)plan and other retirement investmentsas fiduciaries under ERISA. Under the proposal. financial advisers would be required to provide investment advice that is in the best interest of the retirement investor "without regard to the financial or other interests" of the financial institution. adviser or other party. The SEC Rule allows retirement advisers to be paid in various ways as long as they are willing to put the interests of their customers first. in certain cases allowing advisers to receive common types of fees that fiduciaries otherwise cant receive under the law. such as commissions and revenue sharing. The Labor Department is currently reviewing public comments received on its proposed rule and has not indicated when the final rule will be issued. Supporters of the bill argue that it is needed to prevent a potentially harmful rule from going into effect. The proposed Labor Department rule would be very costly to brokerdealers. requiring them to meet two separate standards when advising clients: the fiduciary standard when advising on retirement issues and the suitability standard for other investment matters. The resulting high compliance and potential liability costs. they say. could drive many smaller brokerdealers out of the market for providing retirement advice or lead them to service only larger dollar accounts. thereby limiting access to professional retirement planning and guidance for those retail investors who need it most and likely resulting in a reduction in the overall level of retirement savings for American workers. They note that the United Kingdom in 2013 implemented a similar rule. which has created an "advice gap" for 60.000 investors with smaller accounts. The DoddFrank law. they say. gave the SEC the lead role in setting the fiduciary standards. and they argue that the SEC. not the Labor Department. is the better choice for developing those rules because it is much more familiar with investment markets. In fact. they contend that the proposed Labor rule is confusing and actually conflicts with existing rules and securities market trading practices. and that it could disrupt the carefully considered regulatory regime applicable to brokerdealers and investment advisers that is administered by the SEC and FINRA. Brokerdealers and others operating under the lower "suitability" standard often have a direct conflict of interest. directing their customers to highercost investments that have hidden fees or from which the advisers get backdoor payments. We say this behavior in the predatory lending activity that led to the economic collapse in 2008. Home purchasers who could qualify for lower fixed rates for new home purchases were only shown loans that had high interest triggers that would double or triple mortgages a few years after they were purchased. The conflicts of interests in investment programs. the White House Council of Economic Advisers estimates. result in annual losses for affected U.S. investors of about 1 percentage point. or about $17 billion per year in total. The Labor Departments proposed fiduciary rule would require all retirement investors to instead put their clients best interests before their own profits. Blocking the Labor Department from issuing its rule until the SEC acts on a standardofconduct rule for brokerdealers could effectively kill the critical consumer protections that would be provided by the Labor rule. since the bill does not require the SEC to ever issue its rule. While the SEC should similarly update its rules governing investment advice related to securities. they argue that Congress should not hinge the Labor Departments efforts on the SECs ability to do so. Labors rule was thoughtfully developed and would not cause disruptions in the market. they say. noting that the department worked with the SEC in developing the rule and that it has taken into account the concerns of stakeholders. This bill prohibits the Labor Department from implementing a final rule on fiduciary standards for retirement investment advisers until after the Securities and Exchange Commission (SEC) conducts a study and issues a final rule setting standards of conduct for brokerdealers. Specifically. the Labor Department could not exercise its authority under ERISA to define the circumstances under which an individual is considered a fiduciary until 60 days after the SEC issues a final rule regarding standards of conduct for brokerdealers pursuant to Section 913 of the DoddFrank Act. The bill would not. however. require the SEC to issue a rule. Prior to issuing a rule. the SEC must complete a study and report to Congress on whether retail investors are being harmed by the lower standard of care under which brokers and dealers operate. and offer alternate remedies to reduce confusion or harm to retail investors due to that different standard. It also must investigate whether the adoption of a uniform fiduciary standard would adversely affect the commissions of brokers and dealers. the availability of proprietary products and the ability of brokers and dealers to engage with customers. as well as whether a uniform fiduciary standard would adversely affect access by retail investors to investment advice. The conclusions in the report must be supported by economic analysis. In developing a rule. the SEC would be required to consider differences in the registration. supervision and examination requirements applicable to brokers. dealers and investment advisers and publish formal findings that the rule would reduce confusion or harm to retail customers caused by the different standards of conduct. I urge my colleagues to join me in opposition to this bill and protect the little that workers have from their shrinking wages to protect against falling into poverty once their work years have been spent in increasing the profits of employers.