As the Obama administration reached the end of its nearly six-year battle with financial firms over setting tougher rules for brokers who handle retirement accounts, an emissary went up to Capitol Hill to smooth the way for the rollout.
AARP, in a meeting with Democratic congressional aides last month, stressed the policy's importance to its millions of retiree members, according to people briefed on the gathering. The more significant message, however, was left unsaid: lawmakers besieged by industry pushback should keep in mind there was an equally powerful lobby on the other side.
AARP's leading role in advocating for the Labor Department rule that makes brokers put clients' interests ahead of their own was no accident. The administration, seeking to cement a legacy of being tough on Wall Street, spent months trading information and coordinating with the group as it campaigned for the plan, hundreds of pages of e-mails obtained from the department under public records law show.
The collaboration — which opponents decried as overly cozy — included AARP and Labor staff discussing guest lists for events, writing questions for an appearance in Miami by Labor Secretary Thomas Perez and strategizing on how to plant positive media articles. President Barack Obama himself announced the policy's revival last year at AARP's headquarters in Washington. And last week after the rule's completion, he wrote the group a thank-you note.
'Own Country'
The alliance helped resuscitate the regulation after many thought it was dead in 2011 due to vociferous lobbying by banks, brokerages and insurers. AARP's muscle will also be important going forward, supporters say, as the industry tries to get Congress or the courts to reverse one of its biggest losses since the Dodd-Frank Act passed in 2010.
"The AARP is its own country," said Knut Rostad, president of the Institute for the Fiduciary Standard, who has called for the stepped up protections for years.
The new rule, which brokers must fully adopt by January 2018, requires advisers to act in the best interests of their clients, an obligation known as fiduciary duty. Previously brokers could recommend investments that they believed were merely suitable.
Labor Department spokesman Michael Trupo said input from a broad array of groups led to a strong regulation that also minimizes burdens on industry.
Broad Group
"The Department of Labor welcomed feedback on how to address conflicts of interest in retirement advice through meetings, hearings, phone calls and written comments from a broad range of stakeholders, including consumer and retirement advocates, representatives from the financial services industry, and others," he said.
AARP (formerly known as the American Association of Retired Persons) carries great weight in Washington because of its massive war chest and membership, a group of 38 million people over the age of 50 who tend to vote in great numbers. Non-partisan and non-profit, it has made financial issues a top priority and had been working in some capacity on getting the broker rule enacted since the late 1990s.
Cristina Martin Firvida, the group's director of financial security, said that while AARP was able to provide something of a counterweight to the finance industry's opposition, it still sees the fight more in David v. Goliath terms.
"Certainly our 38 million members are very, very important," she said. "But there is no mistaking that the power of the lobbying on the other side of this issue is staggering."
Calculated Move
The Labor Department records, which cover the first six months in 2015 when the push to revive the rule kicked into high gear, provide a rare glimpse into how the Obama administration courts, and relies on, outside allies in tough policy fights.
Opponents included big banks like Morgan Stanley, major mutual fund companies like Fidelity Investments and independent brokers across the U.S. Many see the Labor-AARP partnership as a calculated move by the government to use the retirees' group as its own de facto lobbyist. With the administration unable to persuade scores of congressional Democrats to support the rule, they say, it turned to AARP.
The result, the industry says, is that a rulemaking impacting millions of investors and $12 trillion in retirement savings was marred by politics. The message of beating back Wall Street, they add, quickly took precedence over a deliberative process that could have led to a less-flawed regulation. In particular, they say the policy could lead to lower-income clients being shunted aside because of the increased compliance costs.
"It is one thing to win a political race, it is another thing to make good policy," said Kenneth Bentsen, president of the Securities Industry and Financial Markets Association which represents hundreds of brokerage firms, banks and asset managers. "In this instance, the politics don't make it right." 'Sea Change'
Bentsen said he was especially struck when Obama appeared at AARP's offices in February 2015 to announce the rule's revival.
The event left some wondering when a U.S. president last made a personal plea for an adjustment to the Employee Retirement Income Security Act of 1974. "That is just a sea change," Bentsen said.
AARP wasn't the only advocacy group that worked with the White House. Some, like the Consumer Federation of America, have fought for a fiduciary rule for years. Other backers included the AFL-CIO labor federation, Americans for Financial Reform and Better Markets.
Also significant, people involved say, was Perez, who made the rule's enactment a priority when he became secretary in 2013. He personally briefed members of the House and Senate and called advocates before key developments, according to a copy of his daily appointment calendars for the first half of last year.
Democrats' Opposition
