House of Representatives Approves Financial Choice Act of 2017 Repealing ERISA Fiduciary Rule and Best Interest Contract Exemption

Securities and Insurance Law Alert

June 9, 2017

David J. Libowsky

David J. Libowsky


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We are issuing the latest update to our recent Alerts regarding the final rules issued by the Department of Labor (“DOL”) with respect to fiduciaries under the Employee Retirement Income Security Act of 1974 (“ERISA”) and the DOL’s Best Interest Contract Exemption (“BIC Exemption”) from ERISA’s prohibited transactions provisions as well as Congress’s attempts at blocking implementation of the ERISA Fiduciary Rule and BIC Exemption. On June 8, 2017, the House of Representatives approved the Financial Choice Act of 2017 (H.R. 10) by a vote of 233 to 186. As we have previously noted, the Financial Choice Act of 2017, which is intended to replace much of the Dodd-Frank Act, would among other things void the Fiduciary Rule and BIC Exemption. The portion of H.R. 10 relating to the Fiduciary Rule and BIC Exemption is contained in Section 841, which is entitled “Repeal of Department of Labor Fiduciary Rule and Requirements Prior to Rulemaking Relating to Standards of Conduct for Brokers and Dealers.” The text of the Financial Choice Act of 2017 can be found at the following link: https://www.congress.gov/115/bills/hr10/BILLS-115hr10rh.pdf

There have been no amendments to Section 841 since it was approved by the House Financial Services Committee on May 4, 2017. In summary, in addition to voiding the Fiduciary Rule and BIC Exemption (Section 841(a)), the Financial Choice Act of 2017:

  • Bars the DOL from promulgating any replacement fiduciary rule until 60 days after the Securities and Exchange Commission (“SEC”) issues its “final rule relating to standards of conduct for brokers and dealers….” (Section 841(b));
  • Requires the Secretary of Labor, in the event he determines to promulgate a new rule, to “prescribe a substantially identical definition of what constitutes fiduciary investment advice and impose substantially identical standards of care and conditions as the [SEC] has imposed on brokers, dealers, or investment advisers” (Section 841(c)); and
  • Requires the SEC to (A) submit a report to the House Committee on Financial Services and the Senate Committee on Banking, Housing, and Urban Affairs  addressing whether (i) retail investors “are being harmed due to brokers or dealers operating under different standards of conduct than those that apply to investment advisors under section 211 of the Investment Advisers Act of 1940 ….,” (ii) “alternative remedies will reduce any confusion or harm to retail investors due to brokers or dealers operating under different standards of conduct than those standards that apply to investment advisors….,” (iii) “the adoption of a uniform fiduciary standard of conduct for brokers, dealers, and investment advisors would adversely impact the commissions of brokers and dealers, the availability of proprietary products offered by brokers and dealers, and the ability of brokers and dealers to engage in principal transactions with customers,” and (iv) “the adoption of a uniform fiduciary standard of conduct for brokers or dealers and investment advisors would adversely impact retail investor access to personalized and cost-effective investment advice, recommendations about securities, or the availability of such advice and recommendations, (B) support its conclusions by economic analysis, and (C) publish along with the rule “formal findings that such rule would reduce confusion or harm to retail customers … due to different standards of conduct applicable to brokers, dealers, and investment advisors” (Section 841(d)).

During the floor debate on the Financial Choice Act of 2017, Democratic members of the House asserted that the legislation, which they characterized as the “Wrong Choice Act,” is likely “dead on arrival” in the Senate. There is no companion legislation to H.R. 10 currently pending in the Senate. In light of the political commentary by the Democrats during the House floor debate, the Financial Choice Act of 2017, including the portion of the legislation voiding the DOL’s Fiduciary Rule and establishing standards for any future fiduciary rules by the SEC and DOL, faces an uncertain future as the legislative battle over the fate of the Fiduciary Rule shifts to the Senate.