Two of the most influential players in the long-ranging debate over the merits of the Labor Department’s fiduciary rule sat elbow-to-elbow before a House subcommittee on retirement today.

Dr. Jason Furman, who served as chair of the Council of Economic Advisors under President Obama, was responsible for generating research that estimated retirement investors lose $17 billion a year to conflicted investment advice, a figure that provided the empirical rationale for promulgating the controversial rule.

Bradford Campbell, a partner at Drinker Biddle & Reath and former head of Labor’s Employee Benefits Security Administration, has been a lead opponent of the rule, and a staunch critic of Furman’s and the CEA’s research on conflicted advice.

A fistfight did not break out. In fact, the hearing’s temperament was notably cordial.

But small moments in their testimony and questioning from lawmakers served to underscore just how deeply divisive the debate over the fiduciary rule continues to be.

The two men sat inches apart, vastly accomplished and at the pinnacle of their respective disciplines, an ideological chasm dividing them on where the fiduciary rule should go from here.

In his opening statement, Campbell called the fiduciary rule the “poster child for inefficient regulation that will hurt the people it is intended to help.”

Without mentioning Furman or the CEA, he said the rule is based on “rosy academic projections,” and that the real-world evidence that has emerged as industry prepares to comply with the rule proves “the academic predictions” behind the rule “were wrong.”

Campbell said it is “imperative” that the Labor Department delay the June 9 applicability date of the rule’s impartial conduct standards until the agency completes a new review of the rule.

In his testimony, Furman maintained that high-fee, low return investments serve as a primary risk to the retirement security of millions of Americans. In answering a question from Rep. Bobby Scott, D-VA, the ranking member on the House Education and Workforce Committee, Furman made a point of responding to Campbell’s claims.

“There’s a lot of derision of the academic evidence here—the academic evidence on this is very clear, very strong, very bipartisan. The report we did was reviewed by outside Republican and Democrat economists, all of whom agreed with it,” Furman said.

In his written testimony, Furman said the decision to delay the implementation of the rule’s impartial conduct standards to June 9 would potentially transfer “billions of dollars from middle-class savers to financial institutions.”

Because the tax code subsidizes savings in IRA and defined contribution plans, government has “an important role to play” in ensuring the security of investments and the quality of advice, Furman noted.

The CEA’s data will no doubt come under the microscope as the Labor Department issues a new economic analysis of the rule, which was ordered by President Trump. The Labor Department has said it expects to complete that review by January 1, 2018, when the bulk of the rule’s compliance requirements are scheduled for implementation.

In theory, if the CEA’s research can be proven to be spurious, then the Trump Labor Department will have more legal latitude to revise the rule, or even rescind it.

Campbell and other opponents of the rule claim it will crimp small investor’s access to advice, and say evidence already exists showing investment firms are raising minimum investment thresholds in preparation for complying with the rule.

In questioning from Rep. Virginia Fox, R-NC, a member of the subcommittee on Health, Employment, Labor and Pensions, Campbell noted 2011 data from the Obama Labor Department that said the lack of access to investment advice costs IRA investors $100 billion annually.

That figure “has to be balanced in the new economic analysis,” said Campbell, who said he was not testifying on behalf of his industry clients.

As written, the fiduciary rule allows commission-based compensation on the sale of investment products through the Best Interest Contract Exemption.

Independent analysts have predicted that the extent of requirements under the BIC Exemption, and the threat of litigation under its private right-of-action provision, will motivate investment providers to move IRA investors to fee-based compensation models, which will not require use of the BIC Exemption.

But fee-based arrangements “have inherent conflicts too,” said Campbell.

“You can find a conflict in any form of payment,” he said. The rule is not actually about investors’ best interests, “but how advisors get paid,” claimed Campbell.

The House Education and Workforce Committee has written the Labor Department twice recently, calling on the agency to further delay the June 9 implementation date of the impartial conduct standards.

The HELP subcommittee chair, Rep. Tim Walberg, R-MI, noted that the subcommittee has led the fight against the “flawed fiduciary rule” for years. He called on “holistic” solutions to crafting retirement policy, and expressed concern for robo-advisory models that would benefit under the rule.

“We have nothing against robo-advisors but people should have access to advice in all forms,” said Walberg.

Instant Insights /

Furman, Campbell square off on fiduciary rule before House committee

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