128 online
Most Popular Choices
Share on Facebook 14 Printer Friendly Page More Sharing
OpEdNews Op Eds    H2'ed 2/24/15

A New Rule, and a Brave Official, Gain Allies Against Wall Street

Message Richard Eskow
Become a Fan
  (15 fans)

Reprinted from Campaign For America's Future

Phyllis C. Borzi Assistant Secretary for Employee Benefits Security
Phyllis C. Borzi Assistant Secretary for Employee Benefits Security
(Image by US Department of Labor)
  Details   DMCA

A lone bureaucrat has been fighting the financial industry for years, on an issue that stands at the intersection of two national challenges: investment regulation and retirement security. Along the way she's collected some new and interesting allies. Is that a sign of things to come?

Phyllis Borzi is Assistant Labor Secretary for Employee Benefits Security. By background she is an attorney, a professor and an expert on retirement issues and employee benefits. When she was the pension and employee benefits counsel for a House subcommittee, Borzi became known as the "mother of COBRA." That's the provision that promotes the continuation of employer-based health care coverage when employment ends.

Borzi has been fighting to extend something called the "fiduciary rule" to every financial adviser who handles retirement accounts, requiring them to act in the best interests of their clients. That's a change from the current regulatory situation. As Robert Hiltonsmith of Demos told The Huffington Post, advisors currently "work in their firms' best interest, which is not yours."

Jason Furman, chair of the White House Council of Economic Advisers, elaborated on a Monday press call:

"When you have a broker who has their compensation directly tied to the advice they're giving to a person -- often with that person not knowing that that's the case -- they're going to ... have a big incentive to steer people [to products] that aren't necessarily in the best interest of the client but offer them the greatest compensation."

Pension plan administrators are required to act in future retirees' best interests. But traditional pensions have increasingly given way to 401(k) plans and other financial vehicles that leave critical decisions up to retirees -- typically with the aid of financial advisers who are not held to the same professional standard.

Borzi, who was confirmed as assistant labor secretary in 2009, wanted to change that. So she proposed the fiduciary rule back in 2010. It was abandoned in 2011, after push-back from Wall Street and other commercial interests. But Thomas Perez, who became labor secretary in 2013, pledged to support it. The White House has now issued a slightly more moderate version of the rule and is promoting it heavily.

President Obama said Monday that "We're going to keep on pushing for this rule," adding: "It is the right thing to do for our workers. It's the right thing to do for our country."

It has its opponents, of course. SIFMA -- the Securities Industry and Financial Markets Association -- is one of the groups publicly opposing the rule. "There is no evidence of a crisis, no evidence of a problem," the group's president said last June.

Bernie Madoff's brother Peter, a former SIFMA board member, was unavailable for comment. (He's currently serving a 10-year prison sentence.) But a statement released today seemed to boil down to one message: Trust us. The group assured the public that there's nothing to worry about and no need for additional regulation.

SIFMA also says that the fiduciary rule would increase the cost of investment for middle-class Americans and could make it more difficult for people to find advisers.

That argument was undercut by a new report from the White House Council of Economic Advisers, which found that "conflicted advice" -- where the adviser has a vested interest -- "leads to lower investment returns." The report concluded that "the aggregate annual cost of conflicted advice" to the public "is about $17 billion each year."

The report found that "a retiree who receives conflicted advice when rolling over a 401(k) balance to an IRA at retirement will lose an estimated 12 percent of the value of his or her savings if drawn down over 30 years."

The fiduciary rule's new allies are perhaps even more interesting than its opponents. While it was not originally one of her core causes, the White House has been able to bring Sen. Elizabeth Warren (D-Mass.) on board as an advocate. That's no surprise. Warren has been defending consumers against the financial industry since she first proposed the Consumer Financial Protection Bureau. But the fact that the White House sought her support is a sign of her growing influence and visibility.

Sen. Cory Booker (D-N.J.) was also on hand for the White House's rule announcement. That's especially interesting because Booker has long been considered an ally of the financial industry, with the campaign contributions to prove it. "Wall Street is Betting Big on Cory Booker," reported The Fiscal Times in 2014, noting that Booker received nearly $2 million in donations from the securities and investment sector.

Booker famously defended private equity firms, including Mitt Romney's Bain Capital, from President Obama's criticisms in 2012. "I have to just say from a very personal level," said Booker, "I'm not about to sit here and indict private equity. To me, we're getting to a ridiculous point in America " If you look at the totality of Bain Capital's record, they've done a lot to support businesses and grow businesses."

(I disagree. See here, here, and here.)

Nevertheless, to the surprise of some observers, Booker sided with Warren in opposing December's "Citigroup amendment," a major giveaway to Wall Street's biggest banks. And this week he showed his support for the fiduciary rule. That's an interesting development.

It's true that there's a difference between private equity firms -- or Wall Street banks, for that matter -- and the financial advisers who would be affected by the fiduciary rule. But any criticism of the financial industry has been off-limits in some segments of the Democratic Party. Booker's attendance at this week's event suggests that this may be changing. So did the presence of another Democrat, Rep. John Delaney of Maryland, who had previously voted against the fiduciary rule.

Phyllis Borzi has picked up some interesting supporters in her long struggle for the fiduciary rule -- from a former opponent in the House to a senator with a Wall Street reputation, and from the secretary of labor to the president of the United States.

Let's hope that indicates a shift in the political winds, because there will be many more financial battles to come.

Must Read 1  
Rate It | View Ratings

Richard Eskow Social Media Pages: Facebook page url on login Profile not filled in       Twitter page url on login Profile not filled in       Linkedin page url on login Profile not filled in       Instagram page url on login Profile not filled in

Host of 'The Breakdown,' Writer, and Senior Fellow, Campaign for America's Future

Go To Commenting
The views expressed herein are the sole responsibility of the author and do not necessarily reflect those of this website or its editors.
Writers Guidelines

Contact AuthorContact Author Contact EditorContact Editor Author PageView Authors' Articles
Support OpEdNews

OpEdNews depends upon can't survive without your help.

If you value this article and the work of OpEdNews, please either Donate or Purchase a premium membership.

If you've enjoyed this, sign up for our daily or weekly newsletter to get lots of great progressive content.
Daily Weekly     OpEd News Newsletter
   (Opens new browser window)

Most Popular Articles by this Author:     (View All Most Popular Articles by this Author)

How to Fix the Fed: Dismiss Dimon, Boot the Bankers, and Can the Corporations

The Top 12 Political Fallacies of 2012

Pawn: The Real George Zimmerman Story

What America Would Look Like If Libertarians Got Their Way

"His Own Man's" Man: Jeb Bush and the Return of Wolfowitz

"F" The Bureaucracy! The White House Can Help Homeowners Right Now

To View Comments or Join the Conversation:

Tell A Friend