Emails suggest discord in administration over financial adviser rule

The Labor Department’s move to regulate financial advisers has drawn pushback from within the Obama administration, new emails released by Senate Republicans suggest. 

The Labor Department is on the verge of finalizing a fiduciary rule that would require retirement investment advisers to act in the best interest of their clients. Business groups have blasted the regulation, warning it would drive up costs and deprive low-income people of investment advice.

{mosads}But the regulatory push has also created tensions inside the federal government, with agency officials at times battling behind the scenes, according to emails unearthed by Republicans on the Senate Homeland Security and Governmental Affairs Committee. 

The Securities and Exchange Commission (SEC) and the Treasury Department — traditionally two of the main regulators for the financial industry — have both raised concerns about the fiduciary push. 

The Treasury Department warned the Labor Department in March 2015 that the fiduciary rule would “fly in the face of logic.” The SEC, meanwhile, raised concerns about 26 provisions of the rule that were never resolved.

In a letter to Labor Secretary Thomas Perez sent last July, former SEC Commissioner Daniel Gallagher, a Republican, lamented the Labor Department’s “lack of concern for the [SEC’s] views on the issue.” He urged the Labor Department to “scrap” the regulation.

“Unfortunately, those who believe that the SEC can stave off the heavy hand of [the Labor Department] are chasing fool’s gold,” Gallagher wrote in an email in July 2015. 

Other messages show friction between staffers at the Labor Department and the SEC. 

In a chain of emails, Labor Department economist Keith Bergstresser and his SEC counterpart, Matthew Kozora, disagreed sharply over the rule.

“Well, I hate to break it to you, but you’re wrong,” Bergstresser wrote to Kozora in a July 2012 email.

“We have now gone far beyond the point where your input was helpful to me,” Bergstresser added in another email. “If you have nothing new to bring up, please stop emailing me about this topic.” 

Kozora responded, “I apologize if I have overstepped my boundaries. This is a difficult topic for sure, and I was under the impression that my opinion was a. helpful and b. wanted.”

The email chain in the GOP report ends with Kozora concluding that “we just have two opposing viewpoints on the matter.”

The Republican report says the emails show that the Labor Department disregarded recommendations on the regulation from the White House’s Office of Information and Regulatory Affairs, which is responsible for reviewing federal rules before they are issued. 

Michael Trupo, a Labor Department spokesman, rejected charges that the department acted alone. He said the Republican report “mischaracterizes” the emails, adding that the SEC’s recommendations were “incorporated” into the final rule.

“The Department has been and remains committed to developing the strongest possible rule, while also reducing duplicative regulation and minimizing the compliance burden on firms,” Trupo wrote in an email.

“For that reason, we coordinated closely with staff from the Securities and Exchange Commission during the entire four-year period of developing the proposed rule.” 

Industry advocates are urging the SEC and Treasury to take a more proactive role in challenging the Labor Department.

“While the report highlights differing views back-channeled among regulators, the SEC and Treasury have yet to show up for battle publicly in this turf war,” said Alice Joe, managing director of the Chamber of Commerce’s Center for Capital Markets Competitiveness. 

“If the rule becomes final, there will be no fewer than six different ‘rules of the road’ for nearly identical customer relationships — some regulated by the SEC, some regulated by the [Labor Department] and with Treasury peering over everyone’s shoulder,” she added.

The Labor Department says the need for the rule is clear.

“Conflicts of interest in retirement investment advice cost workers and families about $17 billion a year,” Trupo wrote. “We need to protect consumers and investors from these conflicts by requiring retirement adviser to provide advice in their clients’ best interest.”