While prospects in the U.S. Senate are perceived to be less than 50/50 for passage, anything can happen - especially where Wall Street's money is in play. While President Barack Obama is unlikely to support putting obstacles to agency rule-making as mandated by the Dodd Frank Act, the bill emerging from the House could find its way into broader legislation that may prove more difficult for the White House to reject.
Let's examine what is going on, in more detail:
AN ANTI-CONSUMER, ANTI-FIDUCIARY, PRO-WALL STREET BILL.
The CFP Board issued the following press release today, which aptly summarizes what the House Financial Services Committee is really up to. The coalition of financial planner groups and consumer groups is to be applauded for their effort, which may have aided in having parts of the bill struck today. The CFP Board's press release stated:
"'Despite its name, H.R. 2374 is not an investor protection bill,' stated the groups in a letter. 'To the contrary, it would leave American investors with significantly less protection.'
"The organizations signing the letter – AARP, Certified Financial Planner Board of Standards, Consumer Federation of America, Financial Planning Association, Investment Adviser Association, National Association of Personal Financial Advisors and the North American Security Administrators Association – cited two specific negative outcomes should the legislation, as written, become law.
"First, the bill 'imposes unnecessary and onerous rulemaking requirements that the Securities and Exchange Commission (SEC) must meet before it can adopt a fiduciary rule.' While rules the SEC adopts should undergo economic analysis before adoption, the legislation sponsored by Rep. Ann Wagner (R-MO), requires a burdensome cost-benefit analysis that 'would delay (or even prevent) the rulemaking and increase the likelihood of it being struck down by the courts upon legal challenge.'"
"The second concern is that the legislation links the two rulemakings and would prevent the Department of Labor (DOL) from moving forward with its rulemaking on the definition of fiduciary under ERISA, a statute that plays an important role in protecting Americans’ retirement accounts. In short, the legislation prevents the DOL from moving forward with its rulemaking until two months after the SEC issues a final rule related to broker-dealer conduct standards."
"This not only unnecessarily slows DOL’s rulemaking, but it potentially halts DOL’s rulemaking altogether if the SEC does not act on a fiduciary rule,” noted the group in its letter, urging the Committee to let the DOL move forward with its own rulemaking as it is the expert agency."
(See Appendix A, below, for the main text of the bill, as it was passed out of the House Financial Services Committee today.)
THE COMMITTEE'S VOTE - WAS IT BI-PARTISAN?
Observe that the House Financial Services Committee is packed with 33 Republicans and 28 Democrats. H.R. 2374, the Retail Investor Protection Act, was agreed to, as amended, by a recorded vote of 44 ayes and 13 nays. In other words, about one-half of the Democratic U.S. Representatives on the Committee voted for the bill, and all or nearly all of the Republicans."
However, it should be noted that House Democratic leadership packed the House Financial Services Committee with "Corporate Democrats." As explained in a recent news article: "A group of 21 House lawmakers—including eight Democrats—is pushing seven separate bills that would dramatically scale back financial reform ... 'The default position of many members of Congress is to do what Wall Street wants. They are a main source of funding,' says Bartlett Naylor, a financial-policy expert at the consumer advocacy group Public Citizen .... the problem with the Democrats is the so-called corporate Democrats, those who often represented marginal or red districts / states." See "The Definition of Insanity: Democrats Working to Undermine Financial Regulation" (April 4, 2013) available at http://notesonatheory.wordpress.com/2013/04/03/the-definition-of-insanity-democrats-working-to-undermine-financial-regulation/.
As better explained in a 2009 Bill Moyers interview by economist Robert Kuttner: "[The] corporate Democrats ... were put on that committee because Rahm Emanuel [former White House Chief of Staff under Obama] felt that there's no better place than the House Financial Services Committee if you want to shake down Wall Street, to put it bluntly."
So, ask yourself this question. Is this a small group of Democrats, placed on the House Financial Services Committee to secure sizable donations from Wall Street? Or is this a bi-partisan vote, as many anti-fiduciary advocates will portray it?
WALL STREET'S CONTROL OVER CONGRESS: COMPELLING EVIDENCE
The New York Times reported that Jeff Connaughton, a former lobbyist and former congressional staffer, said that Wall Street has so much influence on the Hill that it “skews the thinking of Congress.” Eric Lipton and Ben Protess, "Banks’ Lobbyists Help in Drafting Financial Bills" (New York Times, May 23, 2013), available at http://dealbook.nytimes.com/2013/05/23/banks-lobbyists-help-in-drafting-financial-bills/.
The New York Times further relayed this quote: “It’s appalling, it’s disgusting, it’s wasteful and it opens the possibility of conflicts of interest and corruption,” Rep. Jim Himes, a top recipient of Wall Street donations and a former banker at Goldman Sachs, told the Times, admitting his own faults. “It’s unfortunately the world we live in.” See MapLight, "Rep. Jim Himes Thrives in "Disgusting" Fundraising System, Co-Introduced Amendment to Weaken Dodd-Frank" (June 9, 2013), available at http://www.natlawreview.com/article/rep-jim-himes-thrives-disgusting-fundraising-system-co-introduced-amendment-to-weake.
I doubt we have seen what Wall Street can really do, in terms of monetary influence. Let's revisit history. "[W]hen Wall Street launched the final drive to repeal Glass-Steagall in the late 1990s ... the financial services sector ... kicked in $350 million to buy enough votes to kill the 1933 FDR legislation that protected the commercial banking sector for 66 years ... Needless to say, the lion's share of the money was directed at members of the relevant House and Senate committees with oversight over the financial sector ... Breaking that figure down on a per capita basis, with 435 Members of the House of Representatives and 100 Members of the Senate, Wall Street shelled out an average $654,205.61 on each and every Member. Given the massive taxpayer-backed looting operations that took place over the next seven years, before the bubble finally blew on the biggest gambling binge in history, from Wall Street's standpoint, it was money well spent." "Wall Street Spent $350 Million To Buy Congressional Repeal of Glass-Steagall" (March 20, 2013), available at http://larouchepac.com/node/25915.
In recent weeks, since the end of the academic year, I've been conferring with colleagues and have visited with officials in Washington, seeking to push forward the DOL's rule-making efforts. And I've been crafting a lengthy reply to the SEC's Request for Information (comments to the SEC are due July 5, 2013).
Along the way I've discovered that the DOL's re-proposal of its "Definition of Fiduciary" rule must, as with all administrative rules, pass through the White House Office of Management and Budget (OMB). Even though the DOL's proposal has not yet been submitted to OMB, Wall Street's lobbyists have been visiting OMB in earnest. Yet, what about the pro-fiduciary advocates ... are they also visiting OMB? NONE HAVE.
(I, myself, several weeks ago, scheduled a visit to OMB for early June. Yet, one business day before my visit was to occur, the OMB e-mailed me to cancel my visit, with not even an offer to re-schedule. It appears the OMB doesn't even want to hear of the substantial economic rationale for imposition of the fiduciary standard; they may already be convinced by the arguments advanced by Wall Street's lobbyists.)
In essence, without fervent action by pro-fiduciary, pro-consumer groups, there exists a reasonable chance that DOL's re-proposed rule may never see the light of day.
I've also discovered that Wall Street lobbyists are hard at work in both the House and Senate. That should come as no surprise. What is surprising is that Wall Street has apparently convinced key lawmakers of its perspectives, such as: "The fiduciary standard will mean that investors will lose access to investment advice." And a host of other, similar arguments, long since discredited.
Last week I had the pleasure, at TD Ameritrade's Fiduciary Summit, of speaking with Consumer Federation of America's Barbara Roper, the most knowledgeable and effective advocate on fiduciary rule-making. I remember telling her (after reading a recent article about her views on the prospects for fiduciary regulation) that she should not be so pessimistic about the chances for the fiduciary standard for personalized investment advice becoming finalized through rule-making. Perhaps she knew, at the time, more than I do. For now, after today, I feel the same pessimism. Perhaps it feels more like "despair."
WHAT CAN BE DONE?
Simply this. Here's a question for each and every reader of this blog:
Are you concerned about the adoption of the fiduciary standard, the need for all financial advisors to become true professionals, the substantial negative drain on capital markets returns through Wall Street's excessive rent-taking, the diminished trust in financial services, and the negative effects of all of the foregoing on the prospects for future U.S. economic formation, America's economic growth, and the retirement security of all of our fellow Americans?
If you are, contact your members of Congress today - both of your Senators and your U.S. Representative. Fax them a letter. (Go to their web sites for the fax numbers.) Then call their local offices or ask their legislative aides to schedule a meeting with members of Congress when they return to their home districts or states this summer. Let them know that the fiduciary standard is important - for all of us. Let them know the truth.
The only thing that can possibly counter the disproportionate and substantial influence over Congress that Wall Street's money possesses is through personal voter contacts - by each and every one of you - to members of Congress. Let them know you care. Let them know that they should care.
APPENDIX: THE BILL TEXT
(THE DOL MUST WAIT ON THE SEC, WITH REGARD TO FIDUCIARY RULE-MAKING.)
"After the date of enactment of this Act, the Secretary of Labor shall not prescribe any regulation under the Employee Retirement Income Security Act of 1974 ... defining the circumstances under which an individual is considered a fiduciary until the date that is 60 days after the Securities and Exchange Commission issues a final rule relating to standards of conduct for brokers and dealers pursuant to the second subsection (k) of section 15 of the Securities Exchange Act of 1934."
(THE SEC MUST JUMP THROUGH AN EXTRAORDINARY RULE-MAKING EFFORT TO EVEN ADOPT A FIDUCIARY RULE)
"The [SEC] shall not promulgate a rule ... before—
(A) identifying if retail customers (and such other customers as the Commission may by rule provide) are being systematically harmed or disadvantaged due to brokers or dealers operating under different standards of conduct than those standards that apply to investment advisors under section 211 of the Investment Advisers Act of 1940;
(B) identifying whether the adoption of a uniform fiduciary standard of care for brokers or dealers and investment advisors would adversely impact retail investor access to personalized investment advice, recommendations about securities, or the availability of such advice and recommendations ...
The Commission shall publish in the Federal Register alongside the rule promulgated [above] formal findings that such rule would reduce the confusion of a retail customer (and such other customers as the Commission may by rule provide) about standards of conduct applicable to brokers, dealers, and investment advisors.
In proposing rules ... for brokers or dealers, the Commission shall consider the differences in the registration, supervision, and examination requirements applicable to brokers, dealers, and investment advisors."