President Obama will soon use his veto pen for just the tenth time since he’s been in office. On Tuesday, the U.S. Senate passed a resolution of disapproval of the so-called fiduciary rule, a U.S. Department of Labor regulation that requires financial advisors give retirement advice that is in their client’s best interest and is not based on the commission that the advisor will receive.
Georgia Senator Johnny Isakson, the resolution’s sponsor, issued the following statement:
“Today’s vote is a message from hardworking Americans and small businesses that they don’t want this administration further limiting their choices or using red tape to make their lives more expensive.”
Senator Lamar Alexander (R-TN), the chairman of the Senate Committee on Health, Education, Labor, and Pensions, chimed in as well:
“Under this Labor Department’s so-called ‘fiduciary’ rule, retirement planning will be available only to the rich, since many financial advisors won’t be able to risk this new legal liability except for clients with big accounts.”
President Obama has a different opinion, saying that the rule gives consumers much needed protection from shady and self-interested financial advisors:
“There are a lot of very fine financial advisors out there, but there are also financial advisors who receive backdoor payments or hidden fees for steering people into bad retirement investments that have high fees and low returns. So what happens is these payments, these inducements incentivize the broker to make recommendations that generate the best returns for them, but not necessarily the best returns for you.”
There is some evidence for Obama’s position. A 2011 study by researchers at Harvard and MIT found that “[a financial advisor’s] self‐interest plays a role in generating the low‐quality advice.” However, opponents of the rule, including the Financial Services Roundtable, the financial service industry’s advocacy group, argue that the increased regulatory burden will restrict the services that financial advisors can offer. They claim that low income Americans will be hit the hardest as their meager retirement savings will not be worth the risk for financial advisory firms to take them on as clients.
The resolution drew some support from Blue Dog Democrats. Senators Joe Donnelly (D-IN), Heidi Heitkamp (D-ND), and Jon Tester (D-MT) voted with 53 Republicans to strike down the fiduciary rule. Only a simple majority of senators was required since resolutions of disapproval cannot be filibustered under the Congressional Review Act, a 1996 law that gives Congress 60 days to overrule a regulation promulgated by the president. The resolution passed the House last week on strict party lines. Neither chamber secured a two-thirds majority, which will be required to override President Obama’s expected veto.