| The Honorable Bill Huizenga | The Honorable Carolyn Maloney |
| House Financial Services Committee | House Financial Services Committee |
| 2129 Rayburn House Office Building | 2129 Rayburn House Office Building |
| Washington, D.C. 20515 | Washington, D.C. 20515 |
Dear Chairman Huizenga and Ranking Member Maloney,
On behalf of NTU and our members across the country, I would like to thank you for holding a hearing on the impact the Department of Labor’s fiduciary rule. As you are keenly aware, the rule has already been partially implemented, and barring no legislative action, will be fully implemented at the start of 2018. NTU opposes the rule and hopes this hearing will further highlight the disastrous and costly impact it will have on the ability for low and middle-income investors to receive financial advice.
According to a study by American Action Forum, data indicate the fiduciary rule will disqualify up to 7 million IRA holders from investment expertise and reduce the number of IRA openings by 400,000 a year. Consumers will face an additional $46.6 billion in costs, or $813 annually per account. If this rule creates obstacles to high-quality, individualized investment advice, more Americans could be deterred from saving and investing for retirement, especially in tax-advantaged vehicles. As Americans continue to retire at an unprecedented rate, the government should actively support policies that reduce the costs of saving for retirement, not the opposite.
Investment firms have stated that this rule will simply shift their business model from a commission-based system to a fee-based system. Many consumers, however, view this fee-based model less favorably. Unfortunately, this rule will harm those it was supposed to protect. When firms increase their price or choose to deal only with big money investors, lower and middle income investors will be priced out of the market.
Already, businesses have seen compliance costs and man-hours skyrocket to implement this rule. A Department of Labor report issued in April of last year estimates that brokerage firms will spend upwards of $35 billion on final rule compliance over ten years. The industry will also lose out on $11 billion in revenue by 2020 as more Americans exit the market. Even with fewer accounts, firms will see their compliance burden increase by 60,000 paperwork hours annually. Instead of complying with costly regulations, some larger firms like AIG, Metlife and Merrill Lynch have decided to exit the market completely. The decision to entirely avoid the rule affects billions of dollars in assets, countless customers, and has resulted in thousands of employee layoffs.
The hearing will also focus on a draft of Congresswoman Ann Wagner’s (R-MO) proposal to amend the Securities Exchange Act of 1934. In addition to repealing the fiduciary rule, the draft legislation would create a standards of conduct for brokers and dealers that are in the best interest of their customers. It would require brokers to make recommendations that “reflect reasonable diligence, care, skill and prudence” and provide protections to the consumer by requiring brokers to disclose any material conflict of interest. While this legislation is only a draft, I am optimistic that the full legislative text will be a more effective and consumer-friendly alternative to the fiduciary rule.
Sincerely,
Thomas Aiello
Policy and Government Affairs Associate