House sets hearing for Dodd-Frank-busting bill, but observers say it faces tough battle in the Senate.
The House Financial Services Committee has penciled in April 26 for a hearing on the revised Financial CHOICE Act. Championed by the committee’s chairman, Rep. Jeb Hensarling (R-TX), the Financial CHOICE Act 2.0 aims to amend or repeal portions of the Dodd-Frank Act and stop the Department of Labor from implementing a fiduciary rule.
In a statement announcing the hearing date, Rep. Hensarling said his bill would replace the Dodd-Frank “mistake” with policies more conducive to business growth, a move Republicans have long sought. “We want economic opportunity for all, bailouts for none,” the congressman said in a statement. “We want real consumer protections that will give you more CHOICEs. Our solution grows the economy from Main Street up, creates more opportunities for working families to get ahead, and levels the playing field with no more Wall Street bailouts.”
Potential Impact on SIFIs, Executive Pay
As it relates to financial advisors and insurance companies, Financial CHOICE Act 2.0 proposes several major changes. If enacted, the act would remove the Financial Stability Oversight Council’s ability to tap non-banking institutions, such as insurance companies, as systemically important financial institutions (SIFIs). Currently, American International Group (AIG) and Prudential Financial, Inc. have been designated as SIFIs, meaning both institutions are subject to increased capital and liquidity standards as well as heightened oversight by the Federal Reserve.
Under the act, several of Dodd-Frank’s provisions regarding executive pay would either be repealed or amended. Companies would no longer be bound to disclose the pay ratio between the CEO and the median employee or report incentive-based compensation deals. The Financial CHOICE Act 2.0 also permits companies to hold fewer shareholder votes on executive pay. Instead of every three years as Dodd-Frank mandated, “say for pay” votes would be held only when there is a “material change to the compensation.”
Potential Impact on Fiduciary Rule
In addition, the Financial CHOICE Act 2.0 incorporates a key component of the Retail Investor Protection Act, introduced by Rep. Ann Wagner (R-MO). Passed by the House last year, the act stipulates the Department of Labor’s fiduciary role must adhere to one handed down by the Securities and Exchange Commission.
The fiduciary rule mandates financial advisors serve the best interests of their clients and not act for their own monetary gain. The DOL released a proposed fiduciary standard last year that would have applied to any investment professional providing advice to retirement plans and IRA clients.
Any chance the DOL’s fiduciary rule stood of becoming law, however, suffered a blow even before the Financial CHOICE Act 2.0. Soon after taking office, President Donald Trump signed an executive order delaying the fiduciary rule’s implementation until the DOL conducted a study to determine whether it would hamper Americans’ access to financial and retirement investment advice.
The delay postponed implementation from April 10th to June 9th. But recently, the DOL extended the requirement that advisors provide written documentation of their fiduciary status until January 1, 2018, when compliance with the rule’s Best Interest Contract (BIC) exemption goes into effect. By that time, the DOL expects its evaluation to be complete.
The BIC exemption permits advisors, brokers, and insurance agents to receive commission-based compensation on investment sales, BenefitsPro.com reported. Yet several large investment houses like BlackRock maintain that the BIC rule must be streamlined, and some firms have switched to fee-based investment advice in an effort to avoid compliance with BIC.
The Fate of the Financial CHOICE Act 2.0
While major insurers and financial institutions may be relieved by the undoing of Dodd-Frank, political observers contend that the Financial CHOICE Act 2.0 could be stymied on the Senate floor, where it would need 60 votes to pass. “It’s hard to see how the supporters can get this through the Senate,” Andy Friedman of The Washington Update stated in ThinkAdvisor.com. “These are not fiscal issues that can be addressed through reconciliation.” Reconciliation limits budget debates and disallows filibusters.
Similar to the healthcare debate, insurance agents and advisors remain in a wait-and-see mode until the fiduciary rule is finalized — by either the DOL or the SEC. Until then, the best tactic for anyone dispensing financial or insurance advice continues to be to act like a fiduciary and put your clients’ interests before your own at all times. It’s what your clients expect of you.