Congress Votes to Block New Broker Regulations

Published June 8, 2016

Congress has approved a resolution to block the Obama administration’s restrictions on retirement investment planners.

The U.S. Department of Labor’s (DOL) new “fiduciary rule” places stricter standards on investment brokers, requiring them to act solely in each client’s interests. The current “suitability standard” requires a “reasonable basis to believe that the recommendation is suitable for a particular customer.” The rule, published in April 2016, took effect in June.

The U.S. House of Representatives approved House Joint Resolution 88 in April, and the Senate approved the joint resolution in late May. If signed by President Barack Obama, the resolution would block DOL’s regulation from being implemented, in accordance with the review process prescribed by the Congressional Review Act.

If vetoed, the resolution would require an override from two-thirds of both chambers of Congress.

Solution Seeking a Problem

John Berlau, a senior fellow at the Competitive Enterprise Institute, says the fiduciary rule answers a question no one was asking.

“The rule is a solution to a non-problem,” Berlau said. “There already are penalties for fraud.”

Berlau says all financial advice has potential problems consumers should consider, regardless of regulations governing the people giving it.

“Whether advice is ‘bad’ is in the eye of the beholder, and individual savers should decide what is in their own best interest, rather than the government deciding it for them, as it would do under this rule,” Berlau said. “No financial advice is perfect, as no one can predict what investments will do in the future.”

All Cost, No Benefit?

Mark Thornton, a senior fellow at the Mises Institute, says the administration’s new regulation won’t accomplish its stated goal.

“It would not protect investors from bad advice,” Thornton said.

Thornton says the regulation will impose huge costs on consumers seeking investment advice and management.

“It will not make investors more alert or better informed,” Thornton said. “It will make investment advisors less interested in helping their smaller clients because of the risk that they might incur.”

Considering the Sources

Thornton says investment advisors already had strong incentives to take good care of their clients, making the regulation unnecessary.

“By and large, investment advisors survive by working in their clients’ interest,” Thornton said. “What I am more concerned with is the advice given by officials at the Federal Reserve. They told the general public and investment advisors that investments in real estate, mortgage-backed securities, and stocks were a sure thing in 2007.”

The financial crisis began in 2008.

Matt Hurley ([email protected]) writes from Cincinnati, Ohio.