Wall Street Accepts (but Lobbies Against) the Fiduciary Rule

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By Kristen Ricaurte Knebel

Wall Street has said for the past couple of years that the DOL’s fiduciary rule will disrupt the financial services industry, and it’s spent a lot of money fighting against the rule.

But in the three months since the major parts of the rule went in to effect, these same firms are telling their shareholders that they’ve already adapted to the rule. Adapting to the rule, however, hasn’t stopped the industry from continuing to lobby against it.

Lobbying dollars spent by financial services firms coupled with reports given to shareholders illustrate a strategic approach to comply with the Labor Department’s fiduciary rule that allows companies to prepare for the rule as it currently exists, while pushing for changes they want to see. These changes range from streamlined exemptions to outright repeal.

In fact, Sen. Elizabeth Warren (D-Mass.), who’s known for calling out Wall Street’s opposition to the fiduciary rule, this week in a letter to Labor Secretary Alexander Acosta pointed to the earnings statements of at least 10 financial services companies as proof that the rule is having its intended effect of improving the industry. She urged Acosta to take the statements in the earnings calls as proof that despite “alarmist claims” from lobbyists and “opaque industry-funded studies,” companies are ready to comply with the rule and “have a positive outlook on the rule’s impact to their businesses and to their clients.”

A look at second quarter earnings calls from LPL Financial Holdings Inc., Charles Schwab Corp., Primerica Inc., Prudential Financial Inc., and Ameriprise Financial indicates the industry is positioned to comply with the rule. During that same quarter, these companies also shelled out money lobbying on various retirement issues.

Because lobbying disclosures don’t require specific dollar amounts be tied to discrete issues, it’s difficult to say for sure how much of this money was spent lobbying against the fiduciary rule. Each of the companies specifically listed the fiduciary rule, or various Congressional bills that would repeal the rule, on their lobbying disclosure forms. All five companies have asked for changes to the rule and most recently supported a delay of the rule’s provisions in comment letters to the DOL.

The Obama-era fiduciary rule requires financial advisers to act in their clients’ best interest when giving retirement investment advice. The Trump administration has now delayed portions of the rule on several occasions. Parts of the rule that the DOL called the “least controversial” went into effect June 9. The DOL recently proposed to delay the rule’s exemptions until July 2019. The rule is under review by the agency.

Tale of Two Strategies

Despite all of the efforts to kill the rule, these five companies are forging ahead with their plans to implement the rule’s requirements. They are even finding some positive outcomes in it, according to earnings calls.

LPL Financial and Charles Schwab both say they support the intent of the fiduciary rule, while also having reservations about it. Both lobbied on issues in the second quarter that included the fiduciary rule and legislation related to it. Two of those pieces of legislation, the Affordable Retirement Advice for Savers Act ( H.R. 2823) and the Financial Choice Act ( H.R. 10), include provisions that would repeal the DOL’s rule.

While it was lobbying to repeal the fiduciary rule, LPL said in its second quarter earnings call that implementation of the rule is going according to plan and advisers are well prepared. The company even said it sees opportunities to “win business.”

LPL told Bloomberg BNA that the rule and its related exemptions need to be re-examined and “certain changes are needed to protect retirement investors in a less disruptive way. We also continue to believe the DOL should coordinate with the SEC to develop a standard of care for all retail investors.”

In its “ summer business update,” Charles Schwab said complying with the rule hasn’t required “significant overhauls.” The company even anticipates that the rule could ultimately play to its strengths as a company. The “summer business update” is part of an ongoing series Charles Schwab provides its institutional investors to keep them up to date on recent developments.

Prudential and Ameriprise were the only two to directly address the effect the rule has had on earnings in the short time it has been out. Prudential’s annuity sales were down in the second quarter, something it attributed to the continued ambiguity surrounding the fiduciary rule. Ameriprise said it saw a small drop in sales because of the uncertainty surrounding the future of the rule, but the drop was already starting to stabilize a bit.

Prudential had no comment for the story. Charles Schwab, Ameriprise, and Primerica didn’t return requests for comment.

To contact the reporter on this story: Kristen Ricaurte Knebel in Washington at kknebel@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

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