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113th Congress                                            Rept. 113-228
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     Part 1

======================================================================



 
                     RETAIL INVESTOR PROTECTION ACT

                                _______
                                

 September 25, 2013.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

Mr. Hensarling, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                             together with

                             MINORITY VIEWS

                        [To accompany H.R. 2374]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 2374) to amend the Securities Exchange Act of 
1934 to provide protections for retail customers, and for other 
purposes, having considered the same, report favorably thereon 
with an amendment and recommend that the bill as amended do 
pass.
    The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Retail Investor Protection Act''.

SEC. 2. STAY ON RULES DEFINING CERTAIN FIDUCIARIES.

  After the date of enactment of this Act, the Secretary of Labor shall 
not prescribe any regulation under the Employee Retirement Income 
Security Act of 1974 (29 U.S.C. 1001 et seq.) defining the 
circumstances under which an individual is considered a fiduciary until 
the date that is 60 days after the Securities and Exchange Commission 
issues a final rule relating to standards of conduct for brokers and 
dealers pursuant to the second subsection (k) of section 15 of the 
Securities Exchange Act of 1934 (15 U.S.C. 78o(k)).

SEC. 3. AMENDMENTS TO THE SECURITIES EXCHANGE ACT OF 1934.

  The second subsection (k) of section 15 of the Securities Exchange 
Act of 1934 (15 U.S.C. 78o(k)), as added by section 913(g)(1) of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act (12 U.S.C. 
5301 et seq.), is amended by adding at the end the following:
          ``(3) Requirements prior to rulemaking.--The Commission shall 
        not promulgate a rule pursuant to paragraph (1) before--
                  ``(A) identifying if retail customers (and such other 
                customers as the Commission may by rule provide) are 
                being systematically harmed or disadvantaged due to 
                brokers or dealers operating under different standards 
                of conduct than those standards that apply to 
                investment advisors under section 211 of the Investment 
                Advisers Act of 1940 (15 U.S.C. 80b-11); and
                  ``(B) identifying whether the adoption of a uniform 
                fiduciary standard of care for brokers or dealers and 
                investment advisors would adversely impact retail 
                investor access to personalized investment advice, 
                recommendations about securities, or the availability 
                of such advice and recommendations.
          ``(4) Requirements for promulgating a rule.--The Commission 
        shall publish in the Federal Register alongside the rule 
        promulgated pursuant to paragraph (1) formal findings that such 
        rule would reduce the confusion of a retail customer (and such 
        other customers as the Commission may by rule provide) about 
        standards of conduct applicable to brokers, dealers, and 
        investment advisors.
          ``(5) Requirements under investment advisers act of 1940.--In 
        proposing rules under paragraph (1) for brokers or dealers, the 
        Commission shall consider the differences in the registration, 
        supervision, and examination requirements applicable to 
        brokers, dealers, and investment advisors.''.

                          Purpose and Summary

    The Securities and Exchange Commission (``SEC'') regulates 
the conduct of broker-dealers and investment advisers under the 
Securities Exchange Act of 1934 (the ``Exchange Act'') (15 
U.S.C. 78a et seq.) and the Investment Advisers Act of 1940 
(the ``Advisers Act'') (15 U.S.C. 80b-1 et seq.), respectively. 
Section 913 of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (the ``Dodd-Frank Act'') (Pub. L. No. 111-203) 
required the SEC to conduct a study of the different legal 
standards of care broker-dealers and investment advisers owe 
their retail customers, and authorizes but does not mandate 
that the SEC, in its discretion, issue rules to harmonize these 
standards of care.
    Pursuant to the Employee Retirement Income Security Act of 
1974 (``ERISA'') (29 U.S.C. 1001 et seq.), the Department of 
Labor (``DOL'') is authorized to define when a person, 
including an investment adviser registered with the SEC, 
becomes a ``fiduciary'' under ERISA by reason of providing 
``investment advice'' for a fee or other compensation with 
respect to ERISA benefit plans or plan participants.
    To promote coordination between the DOL and the SEC, and to 
reduce the potential for conflict among any related 
regulations, H.R. 2374, the ``Retail Investor Protection Act,'' 
would prevent the DOL from exercising its authority under ERISA 
to issue a final rule defining the circumstances under which an 
individual is considered a fiduciary until 60 days after the 
SEC issues a final rule relating to standards of conduct 
governing broker-dealers under Section 15(k) of the Exchange 
Act. In addition, to ensure that any SEC rulemaking regarding 
changes to the standards of care governing broker-dealers and/
or investment advisers is necessary, H.R. 2374 would amend 
Section 15(k) of the Exchange Act to prevent the SEC from 
issuing any rule without first finding that retail customers 
are being systematically harmed or disadvantaged due to broker-
dealers operating under different standards of care than those 
applicable to investment advisers.

                  Background and Need For Legislation

    Broker-dealers trade securities for their own account or on 
behalf of their customers. Broker-dealers typically charge 
commissions on the trades they execute for their customers. 
Investment advisers provide advice to clients about the value 
of securities and the advisability of investing in, purchasing, 
or selling securities. Investment advisers typically charge an 
annual fee from their clients calculated as a percentage of the 
total assets that they manage.
    Historically, broker-dealers and investment advisers have 
been held to different standards of conduct in their dealings 
with customers. Broker-dealers are regulated by the SEC and the 
Financial Industry Regulatory Authority (``FINRA'') under a 
``suitability'' standard. FINRA rules require that a broker-
dealer, when recommending the purchase, sale, or exchange of 
any security, must have reasonable grounds to believe that the 
recommendation is suitable for the customer given the 
customer's financial status and investment objectives. By 
contrast, investment advisers are regulated directly by the SEC 
under a heightened ``fiduciary duty'' standard of conduct 
pursuant to the Advisers Act. Under this fiduciary duty 
standard, investment advisers owe to their clients the 
affirmative duty of ``utmost good faith, and full and fair 
disclosure of all material facts,'' as well as an obligation 
``to employ reasonable care to avoid misleading'' their 
clients.
    Although broker-dealers and investment advisers are 
generally subject to different standards of care, they both 
provide a wide variety of often similar services to their 
customers. In 2008, the SEC released a study finding that 
broker-dealer and investment adviser firms take ``many 
different forms and [offer] a multitude of services and 
products,'' and that, partly as a result of this ``diversity of 
business models and services, investors typically fail to 
distinguish broker-dealers and investment advisers along the 
lines that federal regulations define.'' Based on this blurred 
distinction regarding the differences between broker-dealers 
and investment advisers, Title IX of the Dodd-Frank Act sought 
to rationalize the regulation of broker-dealers and investment 
advisers and harmonize the regulatory schemes for each. Section 
913 of the Dodd-Frank Act required the SEC to report to the 
House Financial Services and Senate Banking Committees on the 
standards of care applicable to broker-dealers and investment 
advisers. Section 913 permits--but does not require--the SEC to 
issue rules that address these standards of care.
    The SEC released the staff study mandated by Section 913 on 
January 21, 2011 (``Study''). In the Study, the SEC staff 
recommended that both broker-dealers and investment advisers be 
held to a fiduciary standard ``no less stringent than currently 
applied to investment advisers.'' The SEC staff made this 
recommendation because it ``believes that the uniform fiduciary 
standard and related disclosure requirements may offer several 
benefits,'' including heightened investor protection and 
heightened investor awareness. Notwithstanding its belief that 
a uniform fiduciary standard would provide benefits, the SEC 
staff acknowledged that ``investors generally were satisfied 
with their financial professionals,'' and changing the 
standards of care ``could lead to increased costs for 
investors, investment advisers, broker-dealers, and their 
associated persons,'' although the costs were difficult to 
quantify. The SEC has not yet issued any rules in response to 
the recommendations contained in the Study.
    In connection with the release of the Study, on January 21, 
2011, SEC Commissioners Kathleen L. Casey and Troy A. Paredes 
released a separate statement expressing their view that the 
SEC staff had failed to justify its recommendations. 
Commissioners Casey and Paredes stated that ``the Study does 
not identify whether retail investors are systematically being 
harmed or disadvantaged under one regulatory regime as compared 
to the other and, therefore, the Study lacks a basis to 
reasonably conclude that a uniform standard or harmonization 
would enhance investor protection.'' In addition, Commissioners 
Casey and Paredes stated that the Study ``does not 
appropriately account for the potential overall cost of the 
recommended regulatory actions for broker-dealers, investment 
advisers, and retail investors.'' On October 23, 2012, SEC 
Commissioner Daniel M. Gallagher echoed the concerns of 
Commissioners Casey and Paredes, stating that any SEC 
rulemaking pursuant to Section 913 of the Dodd-Frank Act must 
``be supported by [SEC] findings that such rules are necessary, 
as well as a detailed understanding and analysis of the 
economic consequences of such rules.''
    Imposing a uniform fiduciary standard of conduct on broker-
dealers and investment advisers has the potential to 
disproportionately harm the ability of less affluent retail 
investors toaccess personalized investment advice from their 
financial advisers. On September 13, 2011, Terry Headley, President of 
the National Association of Insurance and Financial Advisers, testified 
before the Subcommittee on Capital Markets and Government Sponsored 
Enterprises that ``a wholesale application of the current Advisers Act 
[fiduciary] duty to broker-dealers would negatively impact product 
access, product choice, and affordability of customer services for 
those consumers who are most in need of these services.''
    It is also unclear at this time whether a fiduciary 
standard of conduct offers a superior level of investor 
protection compared to the standards of conduct applicable to 
broker-dealers. On May 23, 2013, Kenneth R. Ehinger testified 
on behalf of the Association for Advanced Life Underwriting 
before the Subcommittee on Capital Markets and Government 
Sponsored Enterprises:
    While under certain circumstances (such as when a broker 
has discretionary authority over a customer's account) a broker 
may be held to the legal standard of a ``fiduciary,'' we 
believe Advisers Act regulation or a broad fiduciary duty 
standard has not provided superior investor protection for 
customers of investment advisers and would not provide a 
measurable increase in investor protection for retail customers 
of broker-dealers.
    Mr. Ehinger further testified that a discussion draft of 
the bill that was later introduced as H.R. 2374 would ``require 
the SEC to identify a real need . . . before upending the 
current standards that apply to broker-dealers.''
    Furthermore, separate from the SEC's authority to regulate 
broker-dealers and investment advisers under the federal 
securities laws, the DOL is authorized to define when a person, 
including an investment adviser registered with the SEC, 
becomes a ``fiduciary'' under ERISA by reason of providing 
``investment advice'' for a fee or other compensation with 
respect to ERISA benefit plans or plan participants. These 
benefit plans include employee pension plans and Individual 
Retirement Accounts (``IRAs'') which typically invest in 
securities registered with the SEC. In October 2010, the DOL 
released for comment proposed regulations broadly defining 
those who would qualify as a ``fiduciary'' under ERISA. 
Although the DOL withdrew its original proposal, according to 
its 6 to 12 month regulatory agenda released in December 2012, 
the DOL plans to issue a revised proposal in 2013.
    Inconsistent standards promulgated by the DOL and the SEC 
governing retirement plan fiduciaries would likely be confusing 
and costly for investors, and difficult for service providers 
to follow. On May 23, 2013, Thomas Quaadman, Vice President of 
the U.S. Chamber of Commerce Center for Capital Markets 
Competitiveness, testified before the Subcommittee on Capital 
Markets and Government Sponsored Enterprises:

          Different sets of rules and requirements applicable 
        to the same assets will lead to additional costs and 
        complexities for the underlying participants and 
        account holders. This issue is further complicated to 
        the extent that an individual may have several accounts 
        at the same financial institution, some of which may be 
        only subject to the SEC rules, and others of which may 
        be subject to the new ERISA requirements as well as the 
        SEC rules. Inconsistent rules will be confusing to 
        investors and problematic for service providers to 
        implement. Without coordination between the agencies, 
        plan sponsors and plan professionals will spend 
        significant resources unnecessarily trying to comply 
        with two different sets of rules that are trying to 
        reach the same goal. This situation could result in 
        retail customers, plan participants, and beneficiaries 
        not receiving the necessary tools and assistance 
        necessary to achieve a financially sound retirement at 
        a time when this is critically important, or only 
        receiving such investment support at an additional 
        cost.

    Mr. Quaadman further testified that the legislative 
proposal that became H.R. 2374 ``calls for the SEC to 
coordinate its rulemaking on retail customer standards of 
conduct with other federal agencies, including the DOL, to 
minimize any conflicts among related regulations.''
    In a June 18, 2013 letter to the Committee, the U.S. 
Chamber of Commerce wrote in support of H.R. 2374, stating, 
``[t]he Chamber believes that this legislation will help ensure 
that retail investors maintain the ability to choose the type 
of financial professional who best meets their investment 
needs. Moreover, due to the related nature of the SEC and DOL 
fiduciary rules, we believe that the two agencies should work 
on a similar timeframe, allowing the SEC to finish first, to 
avoid regulatory conflict or one rule being usurped by the 
other.''

                                Hearings

    The Committee on Financial Services' Subcommittee on 
Capital Markets and Government Sponsored Enterprises held a 
hearing on the legislative text that became H.R. 2374 on May 
23, 2013.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
June 19, 2013, and ordered H.R. 2374, as amended, to be 
reported favorably to the House by a recorded vote of 44 yeas 
to 13 nays (Record vote no. FC-25), a quorum being present.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto.
    1. An amendment by Rep. Maloney to strike section 3 of the 
bill was not agreed to by a record vote of 26 yeas to 31 nays 
(Record vote no. FC-24).

                                              RECORD VOTE NO. FC-24
----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Hensarling.................  ........        X   .........  Ms. Waters.......        X   ........  .........
Mr. Gary G. Miller (CA)........  ........  ........  .........  Mrs. Maloney (NY)        X   ........  .........
Mr. Bachus.....................  ........        X   .........  Ms. Velazquez....        X   ........  .........
Mr. King (NY)..................  ........        X   .........  Mr. Watt.........        X   ........  .........
Mr. Royce......................  ........        X   .........  Mr. Sherman......        X   ........  .........
Mr. Lucas......................  ........  ........  .........  Mr. Meeks........        X   ........  .........
Mrs. Capito....................  ........        X   .........  Mr. Capuano......        X   ........  .........
Mr. Garrett....................  ........        X   .........  Mr. Hinojosa.....        X   ........  .........
Mr. Neugebauer.................  ........        X   .........  Mr. Clay.........        X   ........  .........
Mr. McHenry....................  ........        X   .........  Mrs. McCarthy      ........  ........  .........
                                                                 (NY).
Mr. Campbell...................  ........        X   .........  Mr. Lynch........        X   ........  .........
Mrs. Bachmann..................  ........        X   .........  Mr. David Scott          X   ........  .........
                                                                 (GA).
Mr. McCarthy (CA)..............  ........        X   .........  Mr. Al Green (TX)        X   ........  .........
Mr. Pearce.....................  ........        X   .........  Mr. Cleaver......  ........  ........  .........
Mr. Posey......................  ........        X   .........  Ms. Moore........        X   ........  .........
Mr. Fitzpatrick................  ........        X   .........  Mr. Ellison......        X   ........  .........
Mr. Westmoreland...............  ........        X   .........  Mr. Perlmutter...        X   ........  .........
Mr. Luetkemeyer................  ........        X   .........  Mr. Himes........        X   ........  .........
Mr. Huizenga (MI)..............  ........        X   .........  Mr. Peters (MI)..        X   ........  .........
Mr. Duffy......................  ........        X   .........  Mr. Carney.......        X   ........  .........
Mr. Hurt.......................  ........        X   .........  Ms. Sewell (AL)..        X   ........  .........
Mr. Grimm......................  ........        X   .........  Mr. Foster.......        X   ........  .........
Mr. Stivers....................  ........        X   .........  Mr. Kildee.......        X   ........  .........
Mr. Fincher....................  ........        X   .........  Mr. Murphy (FL)..        X   ........  .........
Mr. Stutzman...................  ........        X   .........  Mr. Delaney......        X   ........  .........
Mr. Mulvaney...................  ........        X   .........  Ms. Sinema.......        X   ........  .........
Mr. Hultgren...................  ........        X   .........  Mrs. Beatty......        X   ........  .........
Mr. Ross.......................  ........        X   .........  Mr. Heck (WA)....        X   ........  .........
Mr. Pittenger..................  ........        X   .........
Mrs. Wagner....................  ........        X   .........
Mr. Barr.......................  ........        X   .........
Mr. Cotton.....................  ........        X   .........
Mr. Rothfus....................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    2. A motion by Chairman Hensarling to report the bill (H.R. 
2374), as amended, to the House with a favorable recommendation 
was agreed to by a record vote of 53 yeas and 6 nays (Record 
vote no. FC-14).

                                              RECORD VOTE NO. FC-25
----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Hensarling.................        X   ........  .........  Ms. Waters.......  ........        X   .........
Mr. Gary G. Miller (CA)........  ........  ........  .........  Mrs. Maloney (NY)  ........        X   .........
Mr. Bachus.....................        X   ........  .........  Ms. Velazquez....  ........        X   .........
Mr. King (NY)..................        X   ........  .........  Mr. Watt.........  ........        X   .........
Mr. Royce......................        X   ........  .........  Mr. Sherman......        X   ........  .........
Mr. Lucas......................  ........  ........  .........  Mr. Meeks........  ........        X   .........
Mrs. Capito....................        X   ........  .........  Mr. Capuano......  ........        X   .........
Mr. Garrett....................        X   ........  .........  Mr. Hinojosa.....  ........        X   .........
Mr. Neugebauer.................        X   ........  .........  Mr. Clay.........  ........        X   .........
Mr. McHenry....................        X   ........  .........  Mrs. McCarthy      ........  ........  .........
                                                                 (NY).
Mr. Campbell...................        X   ........  .........  Mr. Lynch........  ........        X   .........
Mrs. Bachmann..................        X   ........  .........  Mr. David Scott    ........        X   .........
                                                                 (GA).
Mr. McCarthy (CA)..............        X   ........  .........  Mr. Al Green (TX)  ........        X   .........
Mr. Pearce.....................        X   ........  .........  Mr. Cleaver......  ........  ........  .........
Mr. Posey......................        X   ........  .........  Ms. Moore........        X   ........  .........
Mr. Fitzpatrick................        X   ........  .........  Mr. Ellison......  ........        X   .........
Mr. Westmoreland...............        X   ........  .........  Mr. Perlmutter...        X   ........  .........
Mr. Luetkemeyer................        X   ........  .........  Mr. Himes........        X   ........  .........
Mr. Huizenga (MI)..............        X   ........  .........  Mr. Peters (MI)..        X   ........  .........
Mr. Duffy......................        X   ........  .........  Mr. Carney.......        X   ........  .........
Mr. Hurt.......................        X   ........  .........  Ms. Sewell (AL)..        X   ........  .........
Mr. Grimm......................        X   ........  .........  Mr. Foster.......        X   ........  .........
Mr. Stivers....................        X   ........  .........  Mr. Kildee.......        X   ........  .........
Mr. Fincher....................        X   ........  .........  Mr. Murphy (FL)..        X   ........  .........
Mr. Stutzman...................        X   ........  .........  Mr. Delaney......        X   ........  .........
Mr. Mulvaney...................        X   ........  .........  Ms. Sinema.......        X   ........  .........
Mr. Hultgren...................        X   ........  .........  Mrs. Beatty......  ........        X   .........
Mr. Ross.......................        X   ........  .........  Mr. Heck (WA)....        X   ........  .........
Mr. Pittenger..................        X   ........  .........
Mrs. Wagner....................        X   ........  .........
Mr. Barr.......................        X   ........  .........
Mr. Cotton.....................        X   ........  .........
Mr. Rothfus....................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee has held hearings and 
made findings that are reflected in this report.

                    Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee states that H.R. 2374, 
among other things, prohibits the Secretary of Labor from 
prescribing any regulation under the Employee Retirement Income 
Security Act of 1974 defining the circumstances under which an 
individual is considered a fiduciary until 60 days after the 
Securities and Exchange Commission issues a final rule 
governing standards of conduct for brokers and dealers under 
specified law.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee adopts as its 
own the estimate of new budget authority, entitlement 
authority, or tax expenditures or revenues contained in the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to section 402 of the Congressional 
Budget Act of 1974.

                        Committee Cost Estimate

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974.

                 Congressional Budget Office Estimates

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                      U.S. Congress
                               Congressional Budget Office,
                                      Washington, DC, July 9, 2013.
Hon. Jeb Hensarling,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 2374, the Retail 
Investor Protection Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Susan Willie.
            Sincerely,
                                         Robert A. Sunshine
                              (For Douglas W. Elmendorf, Director).
    Enclosure.

H.R. 2374--Retail Investor Protection Act

    H.R. 2374 would prohibit the Secretary of Labor from 
finalizing a regulation related to certain investment advisors 
until the Securities and Exchange Commission (SEC) issues a 
final rule setting standards of conduct for brokers and dealers 
of securities. The regulation that would be delayed by the bill 
will define the circumstances under which an individual is 
considered to be a fiduciary when providing investment advice 
to retirement and other employee benefit plans and their 
participants. Under current law, the SEC has been authorized to 
develop regulations that establish the same standards of 
conduct for brokers and dealers that are already in place for 
investment advisors when providing advice to persons who use 
the information for personal reasons.
    Based on information from the SEC and the Employee Benefits 
Security Administration (EBSA), CBO estimates that implementing 
H.R. 2374 would not have a significant effect on federal 
spending. The EBSA plans to propose a new rule related to 
fiduciary standards for advisors of retirement and employee 
benefit plans but has not published a schedule for 
implementation. Therefore, adding a contingency--that the SEC 
act first--may delay the timing of a final rule from the EBSA, 
but at no additional cost to the agency. The SEC staff has 
recommended that the commission develop a rule to harmonize 
standards of conduct for brokers, dealers, and investment 
advisors; to that end, the commission has issued a request for 
additional data and other information on the topic. CBO expects 
that implementing the provisions of H.R. 2374 would not 
significantly change the SEC's workload. Enacting H.R. 2374 
would not affect direct spending or revenues; therefore, pay-
as-you-go procedures do not apply.
    H.R. 2374 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would not affect the budgets of state, local, or tribal 
governments.
    The CBO staff contacts for this estimate are Susan Willie 
and Sheila Dacey. The estimate was approved by Theresa Gullo, 
Deputy Assistant Director for Budget Analysis.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates reform 
Act.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of the section 
102(b)(3) of the Congressional Accountability Act.

                         Earmark Identification

    H.R. 2374 does not contain any congressional earmarks, 
limited tax benefits, or limited tariff benefits as defined in 
clause 9 of rule XXI.

                    Duplication of Federal Programs

    Pursuant to section 3(j) of H. Res. 5, 113th Cong. (2013), 
the Committee states that no provision of H.R. 2374 establishes 
or reauthorizes a program of the Federal Government known to be 
duplicative of another Federal program, a program that was 
included in any report from the Government Accountability 
Office to Congress pursuant to section 21 of Public Law 111-
139, or a program related to a program identified in the most 
recent Catalog of Federal Domestic Assistance.

                   Disclosure of Directed Rulemaking

    Pursuant to section 3(k) of H. Res. 5, 113th Cong. (2013), 
the Committee states that H.R. 2374 requires no directed 
rulemaking.

             Section-by-Section Analysis of the Legislation


Section 1. Short title

    This Section cites H.R. 2374 as the ``Retail Investor 
Protection Act.''

Section 2. Stay on rules defining certain fiduciaries

    This section prevents the DOL from exercising its authority 
under ERISA to issue a final rule defining the circumstances 
under which an individual is considered a fiduciary until 60 
days after the SEC issues a final rule relating to standards of 
conduct governing broker and dealers under Section 15(k) of the 
Exchange Act.

Section 3. Amendments to the Securities Exchange Act of 1934

    This section amends Section 15(k) of the Exchange Act, as 
added by section 913(g)(1) of the Dodd-Frank Act, to prevent 
the SEC from issuing any rule related to the standards of 
conduct governing brokers and dealers without first identifying 
(i) if retail customers are being systematically harmed or 
disadvantaged due to brokers or dealers operating under 
different standards of conduct than those standards applicable 
to investment advisers; and (ii) whether the adoption of a 
uniform fiduciary standard of care for brokers or dealers and 
investment advisors would adversely impact retail investor 
access to personalized investment advice, recommendations about 
securities, or the availability of such advice and 
recommendations.
    This section requires the SEC, in connection with 
promulgating any rule governing the standards of conduct 
applicable to brokers and dealers, to publish in the Federal 
Register alongside the rule formal findings that such rule 
would reduce the confusion of a retail customer about standards 
of conduct applicable to brokers, dealers, and investment 
advisors.
    This section requires the SEC, in connection with proposing 
rules governing the standards of conduct applicable to brokers 
and dealers, to consider the differences in the registration, 
supervision, and examination requirements applicable to 
brokers, dealers, and investment advisors.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (new matter is 
printed in italic and existing law in which no change is 
proposed is shown in roman):

                    SECURITIES EXCHANGE ACT OF 1934


TITLE I--REGULATION OF SECURITIES EXCHANGES

           *       *       *       *       *       *       *



           registration and regulation of brokers and dealers

  Sec. 15. (a) * * *

           *       *       *       *       *       *       *

  (k) Standard of Conduct.--
          (1) * * *

           *       *       *       *       *       *       *

          (3) Requirements prior to rulemaking.--The Commission 
        shall not promulgate a rule pursuant to paragraph (1) 
        before--
                  (A) identifying if retail customers (and such 
                other customers as the Commission may by rule 
                provide) are being systematically harmed or 
                disadvantaged due to brokers or dealers 
                operating under different standards of conduct 
                than those standards that apply to investment 
                advisors under section 211 of the Investment 
                Advisers Act of 1940 (15 U.S.C. 80b-11); and
                  (B) identifying whether the adoption of a 
                uniform fiduciary standard of care for brokers 
                or dealers and investment advisors would 
                adversely impact retail investor access to 
                personalized investment advice, recommendations 
                about securities, or the availability of such 
                advice and recommendations.
          (4) Requirements for promulgating a rule.--The 
        Commission shall publish in the Federal Register 
        alongside the rule promulgated pursuant to paragraph 
        (1) formal findings that such rule would reduce the 
        confusion of a retail customer (and such other 
        customers as the Commission may by rule provide) about 
        standards of conduct applicable to brokers, dealers, 
        and investment advisors.
          (5) Requirements under investment advisers act of 
        1940.--In proposing rules under paragraph (1) for 
        brokers or dealers, the Commission shall consider the 
        differences in the registration, supervision, and 
        examination requirements applicable to brokers, 
        dealers, and investment advisors.

           *       *       *       *       *       *       *


                             MINORITY VIEWS

    We are concerned that H.R. 2374 is yet another attempt by 
some on this Committee to prevent our regulators from 
protecting the average, retail investor when they try to save 
for retirement. Even though some of the roadblocks set up by 
the bill have been removed, the bill still creates obstacles 
that the Securities and Exchange Commission (SEC) must navigate 
to harmonize the standards for broker-dealers and investment 
advisors.
    While not as restrictive as those in the dangerous cost/
benefit bill this Committee just considered, the restrictions 
would still put additional work in the way of establishing 
rules to stop brokers from self-dealing when selling investment 
products to Main Street. For example, the bill will likely 
require the SEC to do a new study on the impact of adopting 
fiduciary standards on investors--while the previous study 
showed investor confusion, these findings may not be sufficient 
to meet the standards of investor harm and impact on choice 
required in the bill.
    At the same time, the bill would slow the Department of 
Labor (Department) as it seeks to re-issue rules imposing 
fiduciary responsibilities on advisers serving workplace 
retirement plans and individual retirement accounts (IRAs). The 
bill would make the Department's independent authority to 
protect retirement savers conditional on the SEC issuing their 
rules. We agree that the Department went much too far when it 
issued its proposed rule in 2011, with potentially serious, 
unintended consequences. As many of us have mentioned in 
several letters sent to the Department, an overbroad fiduciary 
rule threatens to reduce the availability of advice to 
individual investors and retirees, particularly for individual 
holders of IRA accounts who have control of their own accounts. 
This bill, however, may go too far, making Department 
rulemaking hostage to rulemaking by the SEC.
    For these reasons, we continue to oppose H.R. 2374 in its 
amended form.

                                   Maxine Waters.
                                   Michael E. Capuano.
                                   Joyce Beatty.
                                   Ruben Hinojosa.
                                   Gregory W. Meeks.
                                   Al Green.
                                   Keith Ellison.
                                   Melvin L. Watt.
                                   Wm. Lacy Clay.
                                   Carolyn B. Maloney.
                                   Stephen F. Lynch.

                        Waiver of Consideration

    H.R. 2374 was also referred to the Committee on Education 
and the Workforce. The chairman of that committee and the 
chairman of the Committee on Financial Services exchanged 
letters on June 28 and July 2, 2013, respectively, 
memorializing a waiver of consideration of H.R. 2374 by the 
Committee on Education and the Workforce.