A group of Democratic members of the House, led by Rep. Carolyn McCarthy (D-NY) and Rep. Rush Holt (D-NJ), has written to the US Department of Labor criticizing a new regulation that would redefine the term “fiduciary” in the Employee Retirement Income Security Act of 1974 (ERISA).

Representatives McCarthy and Holt and a group of 27 other Democratic members of the House who call themselves the New Democratic Coalition, write that they are worried that the new definition, while intended to align the interests of brokers and financial advisors with the interests of their investor/clients, could have the perverse effect of both raising the costs of obtaining financial advice, and limiting the availability of such advice to investors.

The representatives, in their letter, call on Secretary of Labor Hilda Solis to “slow down” adoption of the new rule, and to hold open hearings to consider public concerns about it.

Rep. McCarthy says that while consumers clearly need to be protected from broker/advisor abuses, it is also important to “protect a process that enables individual brokers to provide consumers with the advice they need to help ensure they have retirement security in their golden years.”

 While Holt and McCarthy are relatively restrained in their letter, which also went to the heads of the SEC and the CFTC, McCarthy, in an interview, blasted the proposed new rule.

She said,  “Our current and future retirees should not face barriers in receiving basic investment education from service providers.  The truth of the matter is that these rules would foster that kind of an environment.  What’s the rush?  How can we expect folks to patiently save for retirement when our government is hastily putting together shortsighted regulations like this?  It is time to put an end to it, and as my letter states urge the Department of Labor to re-propose their rules in a more conscientious manner to ensure consumer protections.” 

Noting that the rule was drawn up by the Department of Labor, which has primary oversight of ERISA, she complains that there was little or no input from other agencies that have regulatory responsibilities over financial institutions and broker/dealers.

“If the federal government is going to get serious about financial advisor accountability issues,” she says, “all departments and agencies of jurisdiction need to work together on a solution that is beneficial for consumers.  Unfortunately, such was not the case at the Department of Labor as they developed this rule-making. That is why my letter simply asks the Department to re-propose their rules.”

McCarthy argues that the new rule as it stands only complicates things. “We can all agree that retirement investment is not a one-shot deal.  It is a life-long commitment that deserves to be handled with utmost responsibility to protect consumers,” she says.  “The Department of Labor’s proposal does more to threaten the advisor/consumer relationship than it does to strengthen it.  Most strikingly,  DoL’s rules  conflict with SEC and CFTC guidance on broker dealer and investment advisor conduct -- so much so that it would likely lead to  advisors either severely degrading or raising the price for basic educational services.”