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 President Barack Obama on Monday called on the Department of Labor
to write new rules for brokers that seek to reduce conflicts of
interest and "hidden fees" the White House says cost Americans $17
billion from their retirement plans every year. He portrayed the
reform as a central tenet of middle-class economics that would help
Americans "retire with dignity."
What Obama didn't mention is that more than 100 current and former
Democrats in the U.S. House of Representative and Senate have raised
concerns in the past about attempts to draft such rules, either
through comment letters or by voting for legislation that would
delay such a reform.
They've warned that overly strict rules could limit retirement
products available to investors because fewer brokerages would be
prepared to offer individual retirement accounts, or advise
lower-income Americans on them.
Wall Street's argument is that the new rules mean that more
investors would pay fees based on a percentage of their assets,
instead of commissions. That would hurt profits on such products and
as a result brokers would pull back from offering accounts and
advice, financial industry groups say.
 Although new rules would not need specific Congressional approval,
there is a danger lawmakers could separately pass legislation to
delay or kill the plan. And if a large number of Democrats allied
with Republicans, who tend to oppose such rules, then Obama may be
unable to exercise his veto powers.
Some of the Democrats concerned have received campaign contributions
from major financial services trade groups.
For example, the Financial Services Institute (FSI), an industry
group representing independent brokerages, gave $91,500 to House
Democrats in the 2014 election cycle, which covers 2013-2014,
according to OpenSecrets.org.
At least 23 of the 27 Democrat recipients of FSI's political action
committee funds in 2014 warned about the risk of overly strict
rules, according to a review of comment letters and voting records.
REACHING OUT
The administration had been reaching out to some of the Democrats
who had opposed similar moves in the past during the run-up to
Obama’s announcement, according to several people familiar with the
matter.
For example, Labor Department Secretary Tom Perez met with at least
one House Democrat last week to discuss the topic, according to one
financial services lobbyist with knowledge of the matter.
And in the coming weeks, Department of Labor officials are planning
to meet groups of House Democrats to discuss the rules, one House
aide familiar with the discussions told Reuters.
Industry groups representing brokerages and Wall Street wealth
management operations are also planning to convince these Democrats
that prior concerns are still valid, the financial services lobbyist
said.
Already some trade groups, such as the Investment Company Institute,
have been openly challenging the White House's economic research to
rationalize the need for rules, saying the data is riddled with
errors.
LONG ROAD
The Department of Labor has been trying for about four years to
adopt rules designed to rein in conflicts that may lead brokers to
steer investors into more expensive retirement investments and
charge higher commissions or fees.
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But fierce lobbying forced the department to scrap its first draft
in 2011 and start from scratch.
Three of the leading trade groups - the National Association of
Insurance and Financial Advisors, the Securities Industry and
Financial Markets Association and the FSI - have collectively spent
about $16.4 million over the past two years lobbying on this and
other issues, according to Senate lobbying records.
Democrats who wrote comment letters to the department often cited
the same arguments with strikingly similar language.
Dennis Kelleher, the head of the pro-regulatory reform group Better
Markets, said many of the letters "appear to have been drafted by
Wall Street lobbyists."
The financial services lobbyist said the industry fears a revised
plan may not alleviate its concerns.
For instance, the Financial Services Roundtable on Feb. 17
circulated a paper drafted by the law firm Debevoise and Plimpton
which laid out counterarguments, after a memo drafted by White House
economists was leaked to the media
SWITCHING SIDES
At least one Democrat has already been swayed by the Obama
administration's push.
Representative John Delaney of Maryland is a member of the New
Democrat Coalition, a group of business-friendly Democrats who sent
a letter to Perez last year raising concerns that new rules might
"limit access to investment education and information."
Delaney also voted in favor of a 2013 bill sponsored by Republican
Ann Wagner of Missouri to delay the government’s action until the
U.S. Securities and Exchange Commission acts first on a similar rule
for brokers and advisers.
On Monday, he appeared at Obama's speech at the American Association
of Retired Persons, at which the push for tough new rules was
announced. And in a statement to Reuters on Monday, Delaney said "16
months have passed since the House voted to delay the rule" and that
since then, "reams of additional data have been released" showing
the need for the rule to proceed.
Whether other Democrats will follow Delaney remains to be seen. A
spokesman for Congresswoman Gwen Moore of Wisconsin, who previously
voted for Wagner's bill, said the administration "appears to have
addressed her stated concerns" and said she would review the
proposal "with cautious optimism."
(Reporting by Sarah N. Lynch in Washington and Suzanne Barlyn in New
York; Editing by Karey Van Hall and Martin Howell)
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