December 12, 2019

Senator Warren Cautions Department of Labor Against Proposing a Weak Conflict-of-Interest Rule That Would Put Americans' Hard-Earned Retirement Savings in Jeopardy

"Americans' savings should never be willfully compromised by conflicted actors operating under anemic rules - but they are."

Washington, DC – United States Senator Elizabeth Warren (D-Mass.), member of the Senate Health, Education, Labor, and Pensions Committee, yesterday wrote to Department of Labor (DOL) Secretary Eugene Scalia in anticipation of DOL’s proposed replacement for the Fiduciary Rule, warning him against proposing weak conflict-of-interest standards that would allow financial advisers to put their own interests above the interests of working families saving for retirement. This month, DOL is expected to propose a replacement for the Fiduciary Rule, which the Fifth Circuit vacated last year. The Trump Administration refused to appeal that ruling.

“Americans’ savings should never be willfully compromised by conflicted actors operating under anemic rules – but they are,” Senator Warren wrote in the letter.

Studies show that American families lose billions of dollars in retirement savings every year as a result of financial advisers who prioritize making a quick buck over helping customers trying to build a secure retirement for themselves and their families. In 2016, DOL updated its Fiduciary Rule to protect investors, and during the short period the fiduciary rule was partially implemented, investors saw positive results: firms eliminated their highest-fee products and cut prices on funds; some firms eliminated commission-based sales practices entirely. Despite its positive impact for American families, that rule was overturned by a lawsuit brought by Secretary Scalia while he was in private practice and representing the Chamber of Commerce, the broker-dealer industry, and other big business interests.

After the Fiduciary Rule was defeated, DOL announced plans to write a new rule defining conflicts of interest for retirement advisors. Then-DOL Secretary Acosta suggested that the new Fiduciary Rule should mirror a deeply flawed 2019 Securities and Exchange Commission (SEC) rule that governs standards of conduct for all broker-dealers and investment advisers, a troubling view Secretary Scalia appears to share. The SEC rule weakens longstanding protections for investors and does not require broker-deals to eliminate conflicts of interest, as detailed in the letter.   

“Given your past statements that the fiduciary rule ‘is a matter that ought to be addressed by the SEC,’ I am concerned that the DOL may simply copy the wholly inadequate standards of conduct framework developed by the Securities and Exchange Commission (SEC) in its recently-finalized Regulation Best Interest (Reg BI),”wrote Senator Warren in the letter to Secretary Scalia. “That would be a costly mistake—those standards not only allow broker-dealers to give clients advice that is not in their best interest, but significantly water down the longstanding fiduciary standard that has protected the clients of the investment advisers for decades.”

In her letter, Senator Warren asked Secretary Scalia to provide answers to her questions about DOL’s rulemaking by December 18, 2019.
Senator Warren has been a strong opponent of weakened conflict of interest standards:
  • Senator Warren and her office conducted a series of investigations in 2015 and 2017 that showed 13 of the 15 leading annuity providers offered their agents lavish, secretive kickbacks for sales to often-unwitting purchasers, including all-expenses-paid vacations, iPads, professional sports tickets, and more, creating perverse incentives for broker-dealers to sell whatever products reap them the greatest personal reward, even if it comes at the expense of peoples’ savings.
  • She drew attention to lobbying and special interest tactics aimed at weakening the rules proposed in 2015-2016. For instance, when Brookings Non-Resident Fellow Robert Litan testified before Congress in 2015 about a study he authored asserting that the DOL Fiduciary Rule could cost consumers $80 billion, a figure the financial industry amplified in their own arguments against the rule, Senator Warren revealed his work was backed – financially and editorially -- by those same special interests opposing the reforms. Litan later resigned from Brookings.  
  • She advocated for the tougher Fiduciary rule publicly, writing an op-ed in 2016 with Senator Cory Booker (D-N.J.) to argue the urgent need for the reforms.
  • In 2016, Senator Warren and now-Chairman of the House Education and Labor Committee Congressman Bobby Scott (D-V.A.) released a Government Accountability Office study that underscored the importance of working people having sound investment advice that is in their best interest.
  • In January 2017, Senator Warren asked 33 financial institutions whether they supported a roll back of the financial advisor conflict of interest rules, and in September 2017 invoked statements from CEOs that the rule was in the best interest of their customers, while urging then Labor Secretary Alexander Acosta to avoid further delay and implement the new rules.