[Here’s a letter that Lily Batchelder and I sent to Rep. Pelosi and Sen. Reid yesterday urging them to prevent any budget bill “riders” that would delay and/or block the conflict of interest rule on retirement investment advice. As you see, this process has dragged on long enough–opening up another comment period is purely a delaying tactic that Congress and the White House should stand firmly against.]
December 5, 2015
The Honorable Nancy Pelosi
U.S. House of Representatives
The Capitol, H-204
Washington, DC 20515
The Honorable Harry Reid
United States Senate
The Capitol, S-221
Washington, DC 20510
Dear Leader Pelosi and Leader Reid,
We are writing to thank you for your ongoing support of the “conflict of interest” rule proposed earlier this year by the Obama administration, and to urge you to prevent the rule from being further delayed by riders on the Omnibus bill. The proposed rule is an essential step forward in shoring up the retirement savings of millions of families. Specifically, it requires financial advisers to commit to put their customers’ best interest before their own profits – a so-called fiduciary standard – if the adviser is receiving compensation that creates a conflict of interest. This common sense approach would go a long way towards reversing the estimated $17 billion that families are losing each year as a result of conflicts of interest.
With such large losses for savers and 10,000 Americans turning 65 each day, the need for action is urgent. Nevertheless, some are pushing for the Department of Labor (DOL) to issue a new proposal and open yet another comment period of 15 days before finalizing the rule. We think this would be a grave mistake.
Consider these facts. The rule was first proposed by DOL in 2010. They received over 300 comments and held two days of hearings with 40 witnesses. In response, they withdrew the rule and spent close to five years revising the proposal to incorporate all the feedback they received. Early this year, DOL issued a new proposed rule. This round, they received more than 300,000 comments during a comment period that lasted about five months. DOL held four days of hearings on the rule, with testimony from 75 witnesses.
Such extensive stakeholder feedback has significantly improved the rule. Moreover, the administration has indicated they will incorporate the many constructive suggestions received during the most recent comment period into the final rule. But the rule’s opponents still say they need more time.
We are all for public input, but let’s call a spade a spade: this is just a delaying tactic. If five years of input, over 300,000 public comments, 115 witnesses at public hearings, and significant substantive changes haven’t satisfied the rule’s opponents, isn’t it fair to say they will never be satisfied?
Moreover, releasing a new proposal and allowing 15 more days of comments may sound innocuous but it is not. Each time DOL issues a new proposed rule, a tremendous amount of time goes into responding to every comment (whether constructive or not), crossing every “t”, and dotting every “i”. The rule’s opponents will also inevitably say 15 days is much too little time and ask for the comment period to be extended. The practical effect of requiring DOL to issue a new proposed rule and hold a new comment period is therefore to block them from finalizing the rule during this administration so that it can go into effect.
Millions of retirement savers would lose out in the process. According to careful, independent research, conflicts of interest can shave roughly one percentage point per year off of the returns to those saving for retirement. Over 35 years, that loss can shrink a nest egg by 25 percent.
The many investment advisers and brokers providing quality advice would lose out too. These advisers and brokers are already putting their clients’ best interest first by refusing conflicted payments or not responding to the perverse incentives they create. But it’s hard for them to compete on the basis of putting their clients’ best interest first when an astounding 75 percent of savers believe, incorrectly, that all financial advisers already have to act in their best interest.
We know that the two of you have long fought for the economic security of less advantaged Americans, and we know how important the cause of enhanced retirement security is to you. We thus urge you to recognize that the input process has been more than diligently followed and that any further delays will only serve to hurt savers. The millions of people trying to do the right thing—to save for their retirement in a context where their interests come first—have already waited too long for this rule to be in place.
Professor of Law and Public Policy, NYU School of Law
Senior Fellow, Center on Budget and Policy Priorities