Both supporters and detractors of the fiduciary rule believe individual investors and retirement savers need additional protections—they just disagree about who participants need protection from.

That much is clear following a contentious hearing called before the Republican-controlled House Committee on Education and the Workforce, to discuss the DOL’s new fiduciary rule language. For committee member David Roe (R-Tennessee) and others on the side of many retirement industry service providers, individual savers and investors need protection from an overzealous federal government attempting to impose a harmful regulatory scheme that punishes the very people it is meant to protect. For Department of Labor (DOL) Secretary Thomas Perez, President Barack Obama and a range of consumer advocacy groups, individuals need greater protection from predatory investment advice providers seeking to enrich themselves at the expense of unwitting members of the public.

The hearing followed a pattern that is by now familiar to Washington watchers: Each side skillfully outlined dire-sounding warnings about the rule’s taking effect or not taking effect, but little additional clarity was produced about the most likely impacts of the new fiduciary rule language. What one thinks about the new rule language continues to be defined more by one’s position in the industry (provider or consumer advocate) than by any technical debate or rational examination of potential outcomes.  

Defining one side of the debate, Representative Roe suggested plainly in his testimony the broad and restrictive fiduciary language will prevent advisers from “offering of some of the most basic assistance … such as advice on rolling over funds from a 401(k) to an IRA [Individual Retirement Account].” Roe also said “small business owners would be denied help in selecting the right investment options for their workforce, which will lead to fewer employees enrolled in a retirement plan.” 

During his own presentation to the Education and Workforce Committee, Labor Secretary Perez flatly denied both of these claims, arguing there was nothing in the new rule that would stop honest financial advisers from being able to assist individuals with managing their funds upon retirement. He said the rule’s final impact will be as the DOL intends, leading to better awareness among investment services consumers about the scope and limits of financial advice relationships, without unduly harming business interests in the process.

“When I became Labor Secretary nearly two years ago, I committed to slowing this rulemaking in order to ensure that we got it right,” Perez said. “During that time, my review of the evidence has demonstrated that there is, in fact, a large problem that needs to be solved.”

Beyond Secretary Perez, the other witnesses called to the hearing generally all came down closer to Representative Roe and others who say the unintended consequences of a fiduciary rule change will far outweigh any positives.

One such witness was Jack Haley, an executive vice president at Fidelity Investments. He said Fidelity respects the DOL’s intentions and agrees a best-interest advice standard should be slowly and carefully developed to improve protections for unsophisticated investors. But regarding the form of the proposed fiduciary rule language, he said, Fidelity is seriously worried the Department of Labor’s proposed regulation will severely restrict advisers’ ability to continue to provide assistance to small businesses and workers in 401(k) plans. “We support a best interest fiduciary standard,” he said, “but the details matter.” 

Haley said a best interest standard “must allow individual retirement savers and businesses offering retirement plans to have choice and access to the products and services that help them achieve a secure retirement. While the framework of the DOL’s proposed rule would theoretically preserve different service models when acting in the customer’s best interest, the proposed Best Interest Contract (BIC) Exemption contains so many problematic conditions that the rule is unworkable as drafted and will have the effect of banning many well-established service models.”

Another witness was Dean Harman, founder and managing director of advisory firm Harman Wealth Management in Woodlands, Texas. Harman is a certified financial planner in addition to his operations role, and he represents the Financial Services Institute (FSI) during Congressional hearings. He told the committee FSI and many independent financial advisers “support a uniform fiduciary standard,” but he feels the proposed definition of the term fiduciary for purposes of the Employee Retirement Income Security Act (ERISA) “is based on flawed assumptions that lead it to be too complex, too cumbersome, and too costly,” both for consumers to understand and service providers to follow.

Because of these shortcomings, Harman said FSI believes “the DOL’s proposal will result in small- and mid-sized investors losing access to the retirement advice and products that they need to secure a high-quality of life in their retirement years.”

Full transcripts and an audio recording of the hearing are available online.