Update on the Department of Labor’s fiduciary proposal

Will Congressional activity affect the rule?

Update on the Department of Labor’s fiduciary proposal

Since the Department of Labor (DOL) proposed its “Conflicts of Interest” rule in April, the DOL has been in the process of finalizing the rule, which would expand the definition of “fiduciary” advice and rules governing conflicts of interest to cover broad swaths of the brokerage, investment management, and insurance industries. Top executives of leading institutions have characterized the rule as one of the biggest regulatory changes facing the financial services industry in years. If finalized, it would have a significant impact on revenue streams, business models, products, services and customer experience. The proposal was met with opposition from certain trade associations, market participants, and members of Congress. Despite various calls for the DOL to re-propose or withdraw the rule, as well as various legislative efforts to delay or modify it, the DOL may move forward with a final rule. However, there are ongoing efforts to include language in an appropriations bill that would block funding for the rule. In a speech1 at the Brookings Institution on June 23, 2015, DOL Secretary Tom Perez defended the proposal, the finalization of which he described as “one of the single most important steps [the DOL] can take to assist people preparing for retirement.” Further, in an August 7, 2015 letter2 to Rep. Ann Wagner (R-MO), he stated that the DOL “will move forward towards issuing a final rule that balances the input” it has received. In another speech at the Brookings Institution on October 16, 2015, Secretary Perez stressed3 that the DOL has “proceeded with the utmost caution and deliberation” throughout the rulemaking process and argued that, because of this approach, the “final rule will be stronger for it.”

Congressional activity

Since the issuance of the proposal, several Congressional committees have held hearings to discuss its potential impact, including the (1) House Financial Services Committee,4(2) the House Ways & Means Committee,5 and (3) the Senate Health, Education, Labor, and Pensions Committee.6 Republicans in both the House and Senate have been nearly unanimous in their opposition to the proposal and have requested that the DOL substantially revise or wholly withdraw it. In addition, 96 House Democrats submitted a comment letter raising7 certain contains about the rule—specifically with respect to the Best Interest Contract (BIC) exemption, which they contend should be “less prescriptive and more principles-based”—and identifying areas they believe the DOL should modify it. (Additional comment letters from House and Senate Democrats are available here, here, here, and here).

As a result of this concern about the potential negative impacts of the rule, lawmakers have taken two approaches to delay or prevent the DOL from finalizing it, or to effectuate significant modifications in the final version. First, there have been efforts to pass legislation that would delay the final rule. Second, there are ongoing efforts to include language in an appropriations bill that would block funding for the rule.


On October 27, 2015, the full House of Representatives passed8 a bill (H.R. 1090, the “Retail Investor Protection Act”),9 introduced by Rep. Wagner, by a near party-line vote of 245 to 186 (three Democrats voted in favor of the bill while two Republicans opposed the measure). The bill would prohibit the DOL from finalizing its proposed rule until the Securities and Exchange Commission (SEC) issues a final rule setting forth a fiduciary standard for broker-dealers.

While this legislation would substantially delay the rulemaking process, as the SEC has only just begun to consider issuing a proposed fiduciary rule, it has very little chance of being enacted into law on a standalone basis. The White House issued a Statement of Administration Policy10 expressing its strong opposition to the bill and threatening that, if President Obama were presented with H.R. 1090, “his senior advisors would recommend that he veto the bill.”

Two additional relevant legislative developments have occurred following House passage of H.R. 1090.

First, on November 4, 2015, Reps. Mike Kelly (R-PA) and Sam Johnson (R-TX) introduced H.R. 3922 (the “Retirement Choice Protection Act of 2015”),11 legislation that would, among other things, (1) transfer regulatory oversight of individual retirement plans to the Treasury Department and (2) establish a new BIC standard for advisers to IRAs and retirement plans not subject to ERISA. Second, on November 5, 2015, Reps. Peter Roskam (R-IL), Richard Neal (D-MA), Phil Roe (R-TN), and Michelle Lujan Grisham (D-NM) outlined12 a series of legislative principles that they believe would underlie a more appropriate “Best Interest” standard. The DOL quickly responded to the announcement, arguing that the legislation would “establish a best-interest standard in name only and undermine the Obama Administration’s efforts to protect the retirement savings of America’s working families.”


In addition to standalone legislation that would delay or modify the DOL final rule, there have been efforts in the House and Senate to address the issue through the appropriations process, which began shortly after the DOL issued its proposal and intensified over the course of the year. On June 25, 2015, the Senate Appropriations Committee approved a FY 2016 Labor, Health and Human Services, and Education and Related Agencies Appropriations bill that would prevent funding for the DOL’s fiduciary rule. Likewise, on June 24, 2015, the House Appropriations Committee approved a FY 2016 Labor, Health, and Human Services bill that would block funding for the rule. Neither of these bills have passed their respective chambers.

Congress must pass a FY 2016 appropriations bill or an additional continuing resolution by December 11, 2015 to avoid a government shutdown. Although it is unlikely that either of the bills that cleared their respective committees in June will be passed by both chambers and enacted into law as-is, several lawmakers—including House Financial Services Committee Members French Hill (R-AR) and David Scott (D-GA)—have expressed support for passing an appropriations bill that retains the provision to prevent funding for the fiduciary rule.

Although Senate Minority Leader Harry Reid (D-NV) and other Democratic leaders in both the House and Senate have avowed not to pass appropriations titles with policy riders, recently elected Speaker of the House Paul Ryan (R-WI) declined to rule out the inclusion of policy riders in the appropriations bill, saying only that the “power of the purse rests within the legislative branch, and we fully expect that we’re going to exercise that power.” He also declined to expand upon what policy riders might be included in the bill.

SEC Developments

On March 17, 2015, SEC Chair Mary Jo White spoke at an industry conference, at which she said13 it is her “personal view” that the SEC should “act” on a rulemaking for a uniform fiduciary standard. At a separate industry conference on November 10, 2015, she expanded14 upon these remarks, noting the SEC is “full-out focused” on developing the standard. Although she said the SEC is moving “expeditiously” on a proposal, she stressed the importance of getting it right and declined to estimate when the proposal might be ready for a full Commission vote. Importantly, she did not argue that the DOL should re-propose its rule, but simply noted the SEC and DOL are separate agencies with “separate statutory mandates and responsibilities.”

What does it all mean?

Although standalone legislation to delay or modify the DOL’s final fiduciary rule faces a steep uphill battle in Congress and the threat of a veto from the Administration, the ongoing appropriations process does offer a potential legislative vehicle for enactment of provisions with the same effect. However, even if an appropriations bill with the provision to block funding for the rule passes both chambers and is enacted into law, it remains unclear what effect such a provision would have on future implementation of the rule.

Whether or not Congress ultimately includes this provision in the final appropriations package, the ongoing legislative pressure on the DOL will likely require it to carefully consider the multitude of public comments and suggestions received in response to its proposal. Notably, in testimony before the Senate on July 21, 2015, Secretary Perez said the DOL is “open to making real changes in the rule to improve it,” an approach that continued throughout four days of DOL-hosted public hearings in August.

In addition to the legislative activity, it is likely that the rule will be subject to litigation once it is finalized. However, it is important to note that a final rule would have to be in place before any court would likely consider any legal challenge. Additionally, it remains unknown whether litigation would be successful in stopping or delaying the full implementation of the rule.

We continue to actively monitor events as they unfold and will issue an update as soon as the next major development occurs.


Susan Levey
Deloitte Advisory
Deloitte & Touche LLP
Scott Parker
Deloitte Consulting LLP
Daniel Rosshirt
Deloitte Consulting LLP
Sean Cunniff
Specialist Leader
Deloitte Services LLP
Josh Uhl
Deloitte Advisory Senior Manager
Deloitte & Touche LLP

1Remarks by US Secretary of Labor Tom Perez, Brookings Institution, The Hamilton Project, Forum on Promoting Financial Well-Being in Retirement, Washington, DC, delivered on June 23, 2015, available at http://www.dol.gov/_sec/media/speeches/20150623_Perez.htm.
2Letter from US Secretary of Labor Tom Perez to Rep. Ann Wagner (R-MO), dated Aug. 7, 2015, available at http://thehill.com/policy/finance/250897-labor-secretary-were-moving-ahead-with-financial-advisor-rule
3Remarks by US Secretary of Labor Tom Perez, Brookings Institution Public Meeting, “How Should Retirement Investment Advice Be Regulated?,” Washington, DC, delivered on October 16, 2015, available at http://www.dol.gov/_sec/media/speeches/20151016_Perez.htm
4Hearing entitled “Preserving Retirement Security and Investment Choices for All Americans,” held on September 10, 2015, available at http://financialservices.house.gov/calendar/eventsingle.aspx?EventID=399634
5Hearing on the Department of Labor’s proposed fiduciary rule,” held on September 30, 2015, available at http://waysandmeans.house.gov/event/39840262/
6Hearing entitled “Restricting Advice and Education: DOL’s Unworkable Investment Proposal for American Families and Retirees,” held on July 21, 2015, available at http://www.help.senate.gov/hearings/restricting-advice-and-education-dols-unworkable-investment-proposal-for-american-families-and-retirees
7Letter from 96 Members of the House of Representatives to US Secretary of Labor Tom Perez, dated September 24, 2015, available at http://www.dol.gov/ebsa/pdf/1210-AB32-2-03014.pdf
8Final Vote Results, available at http://clerk.house.gov/evs/2015/roll575.xml
9H.R. 1090, available at https://www.congress.gov/114/bills/hr1090/BILLS-114hr1090rfs.pdf
1oStatement of Administration Policy, H.R. 1090 – Retail Investor Protection Act, available at https://www.whitehouse.gov/sites/default/files/omb/legislative/sap/114/saphr1090r_20151026.pdf
11H.R. 3922, available at https://www.congress.gov/114/bills/hr3922/BILLS-114hr3922ih.pdf
12House Committee on Ways and Means, Bipartisan House Members Outline Legislative Principles to Ensure Retirement Advisors Protect Clients’ Best Interests, dated November 5, 2015, available at http://waysandmeans.house.gov/bipartisan-house-members-outline-legislative-principles-to-ensure-retirement-advisors-protect-clients-best-interests/
13SIFMA Compliance and Legal Society Annual Seminar, March 15-18, 2015, summary available at http://www.sifma.org/cl2015/
14SIFMA Annual Meeting, November 10, 2015, summary available at http://www.sifma.org/annual2015/

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