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Senate Passes Proposal From Lankford’s “Federal Fumbles” Report, Disapproves of Flawed Fiduciary Rule

WASHINGTON, DC – The Senate today approved a Joint Resolution of Disapproval of the Fiduciary Rule (H.J. Res. 88), a proposal that was identified in Senator Lankford’s “Federal Fumbles” waste report as an example of a burdensome regulation (page 95). It passed the Senate with a simple majority by a vote of 56 to 41. The House passed this resolution on April 28.

“If the Administration really wants to reduce retirement savings for middle-class Americans, their fiduciary rule is a perfect plan,” said Lankford. “The Department of Labor fiduciary rule is a poorly conceived regulation that will ultimately discourage savings and investment. We should be careful not to over-regulate investment advice because it could limit access to sound retirement counsel for low and middle-income Americans. The Securities and Exchange Commission already regulates this area. They should remain the lead agency for oversight.”

In April, the Department of Labor finalized a fiduciary rule that expands the control of retirement advice covered by the Employee Retirement Income Security Act of 1974 to include any advice on Individual Retirement Accounts (IRAs) and annuities by investment advisors or brokers. The goal of the newly expanded rule is to prevent any conflict of interest on the part of those that suggest or market a specific retirement investment. The assumption that this rule is based on is that investment advisors have a conflict of interest when counseling their clients. The problem with this broadly sweeping accusation is that it fails to consider the unintended consequences of regulating an entire industry under the premise that they have devious motivations. 

The liability issues surrounding this rule could have a number of negative consequences for individual investors, including the limitation of investor choice, investor access to retirement education, and an adverse impact of millions of IRA holders and plan participants with trillions of dollars worth of assets. Most consequentially, the rule could price low and middle-income Americans out of accessible, sound retirement advice. When a similar rule was implemented in the United Kingdom, many individuals with small retirement accounts lost access to financial advice, and the results would likely be the same in the United States. This is another harmful, one-size-fits-all regulation that will only cripple access to the information American families need to plan for the future. Between entitlement programs careening towards insolvency and pension funds that are on the verge of bankruptcy, our nation faces a massive savings challenge. This rule serves to exacerbate that issue.

Lankford noted in the Federal Fumble report, “Why is the Department of Labor even in the business of regulating financial services when the Securities and Exchange Commission (SEC) already exists for that purpose? The Department of Labor should withdraw this rule, and Congress, in consultation with SEC and financial advisors, should consider whether changes to the current rule are necessary. If changes are needed, Congress should enact legislation instead of allowing a federal agency to create a new rule.”

Last week, the Senate passed another one of Lankford’s “Federal Fumbles” proposals (page 94), when they voted to direct the National Nuclear Security Administration to perform routine assessments of project performance.