House Holds Hearing Regarding Financial Advice (with Delta Strategy Group Summary and Lofchie Comment)

The House Education and the Workforce Subcommittee on Health, Employment, Labor, and Pensions held a hearing titled "Restricting Access to Financial Advice: Evaluating the Costs and Consequences for Working Families and Retirees."

The hearing examined the proposal by the Department of Labor ("DOL") to expand the definition of "fiduciary," and discussed how the proposed rule would impact workers, small businesses and retirees.

The following witnesses testified:

Panel 1:

• The Honorable Thomas E. Perez, Secretary of the Department of Labor (written testimony)

Panel 2:

• Mr. Jack Haley, Executive VP, Fidelity Investments (written testimony)
• Mr. Dean Harman, Managing Director and CFP, Harman Wealth Management (written testimony)
• Mr. Dennis Kelleher, President and CEO, Better Markets, Inc. (written testimony)
• Mr. Kent Mason, Partner, Davis Harman LLP (written testimony)
• Dr. Brian Reid, Ph.D., Chief Economist, Investment Company Institute (written testimony).

Lofchie Comment: It is impossible to have a reasonable discussion about regulation, and whether any particular regulatory requirement is worthwhile, unless regulators are able to concede that their requirements involve certain costs. In that regard, the following exchange, as quoted in the Delta Strategy Group summary of the hearing linked below, is particularly disappointing:Hinojosa (D-TX) and Wahlberg: Any reason low-income investors should expect to pay more for administrative tasks because of the rule? Will the proposal increase costs for advisors, passing costs down to investors? DOL Secretary Perez: No, since it is not in the best interest of the investor to pay more for administrative tasks than they currently do. No, costs will not pass down to investors.The Secretary seems to be saying that investors would not share the additional regulatory costs of the securities business that provided them with services because it would not be in the "best interest" of the investors to pay for increased regulatory costs. By that logic, why would an investor share any of the costs of a business that provided the investor with services? In fact, wouldn't it be in the best interests of the investor to receive all services for free?In the real world, the customers of a business must bear the costs (including the regulatory costs) of the business that provides them with services. If they do not, the service provider will go out of business. If the regulators cannot concede at least that much, then reasonable disagreement is impossible.

Click here for a hearing summary by Delta Strategy Group.

See: Webcast of Hearing; Opening Statement of Chairman David P. Roe (R-TN).Related news: SIFMA and Other Associations Ask DOL for Extension of Comment Period on Conflict of Interest Rule (April 22, 2015); U.S. Department of Labor Issues Proposed Rule Regarding Fiduciary Definition (April 14, 2015).