A Labor Department proposal to tighten regulations on investment advice is inspiring a furious counterattack from the financial services industry — and some Democratic lawmakers are seeing their campaign contributions shrink in the crossfire.

The industry's lobbying campaign has swayed several Democrats against the so-called fiduciary rule, including three House members who have voted to block the regulation and 12 senators who wrote to the department in August to air their concerns. Meanwhile, at least two key Democrats who support the rule are witnessing a dramatic decrease in their support from the financial sector.


“It’s been ugly,” said Rep. Stephen Lynch of Massachusetts, a rule supporter who sits on the House Financial Services Committee. He has received $8,750 so far from the securities industry for the 2016 campaign cycle, way less than the $86,225 he received for 2014.

“I don’t take positions based on campaign contributions," Lynch added. "But I can certainly understand if the financial services people are frustrated with the process. … And they have every right to support whom they like.”

The panel’s top Democrat, Maxine Waters of California, has similarly seen industry donations to her campaign and leadership PAC drop to $2,000 so far, down from $88,000 at the end of the last cycle. Waters, through a spokeswoman, declined an interview.

Opponents of the rule maintain that it would reduce the industry's willingness or ability to assist financial consumers. One critic said the drop in donations should come as no surprise.

“The thing that infuriates the industry is there are hundreds of thousands of financial advisers who do this and they are incensed by Democrats and the administration referring to them as crooks and weasels,” said a senior financial industry executive. “I don’t know that there is an organized effort but you go down to the rank and file of people in the industry who write checks and they are not going to give money to any Democrat they see who supports this rule. They feel like they have been tarred and feathered and wrongly impugned.”

The lobbying frenzy probably won't be enough to stop the regulation, which the Labor Department proposed in April and is expected to issue in final form next year. And the issue may be too abstruse to weigh on voters’ minds. But it's a big concern for a wide swath of the financial industry: insurance companies, brokerage firms and mutual fund providers that are likely to lose revenues once the regulation takes effect.

“This is not a Republican or Democrat issue,” said Andy Blocker, executive vice president for public policy and advocacy at the Securities Industry and Financial Markets Association, who argues that consumers would suffer if the rule goes through. “This is about American investors who could suddenly face real obstacles to retirement savings under the DOL’s proposal. The concerns raised from both sides of the aisle are valid.”

The rule would require financial professionals to consider only a client's best financial interest when advising on how or whether to invest in an Individual Retirement Account. Under current regulations, a broker enjoys some leeway to weigh the client's financial benefit against his own, through commissions and fees — at an annual combined loss to investors, the White House estimates, of about $17 billion per year.

Industry lobbyists knew Republicans would oppose the rule. Their focus is on persuading Democrats to oppose it, too, defying the Obama White House on one of its highest economic priorities. Dissent from congressional Democrats was a major reason why the Labor Department withdrew an earlier iteration of the rule that was proposed in 2010. At that time Democrats were even more resistant to the rule; 30 House Democrats voted to block it.

This time out Labor Secretary Tom Perez is working to shore up Democratic support, surprising some observers in the financial industry with his frequent meetings on Capitol Hill. But the securities and investment sector was the largest source of campaign cash for the 2014 elections, according to the nonprofit Center for Responsive Politics, giving it enormous leverage over the next year.

Already, some Democrats are showing signs of beginning to waver.

Earlier this month, Rep. Richard Neal (D-Mass.) won applause from a group of life insurance companies for recommending alternative “principles” for regulating brokers in contrast to what the Labor Department wants to do. Neal was joined by Reps. Michelle Lujan Grisham (D-N.M.), Phil Roe (R-Tenn.) and Peter Roskam (R-Ill.). Neal’s top donors for the 2014 election were from Massachusetts Mutual Life Insurance, which Wall Street analysts have said would be hurt by the rule.

In an interview, Neal said lobbyists didn't influence his move to consider a fiduciary alternative. “As we’ve moved away from defined-benefit plans to defined-contribution plans, people need advice,” Neal said. “Wealthy people will always be able to get advice. This is about making sure you don’t prohibit the individual in the middle from getting advice.”

Under the Employee Retirement Income Security Act, a fiduciary must act in the best interest of his or her clients when providing retirement advice. The Labor Department's proposed rule would broaden the group classified as fiduciaries to include, for the first time, brokers who advise clients on IRAs. Opponents say the rule would limit access to retirement advice for small savers and force them into more expensive retirement accounts.

On Oct. 27, three House Democrats voted with Republicans to pass a bill supported by the financial industry that would halt the rule: Reps. Brad Ashford of Nebraska, Henry Cuellar of Texas and David Scott of Georgia.

Scott, a Financial Services Committee member and the most vocal Democratic opponent of the rule, received $15,000 from the Investment Company Institute’s PAC in 2014, making it one of his biggest contributors. In the 2016 cycle the insurance and securities industries have thus far been the top two contributors to Scott’s campaign.

The second-biggest donor to Cuellar's campaign and leadership PAC in the 2016 cycle has been New York Life Insurance, which opposes the rule. One of Cuellar’s junior staffers is the daughter of the president of the Securities Industry and Financial Markets Association. (Cuellar said she is not advising him on the issue and that her father "has not lobbied me a lot.”)

Among the 12 Democratic senators who wrote to the Labor Department in August, the securities industry is the top contributor to three, according to the Center for Responsive Politics: Tom Carper of Delaware, Mark Warner of Virginia and Michael Bennet of Colorado. The industry is also the second-biggest contributor to Ron Wyden of Oregon, Bob Casey of Pennsylvania, Debbie Stabenow of Michigan and Jon Tester of Montana; the third-largest contributor to Ben Cardin of Maryland; and the fourth-largest to Claire McCaskill of Missouri, Joe Donnelly of Indiana, Heidi Heitkamp of North Dakota and Robert Menendez of New Jersey. (Prudential is Menendez’s single largest donor.)

For Maine's Angus King, an independent who also signed a letter, the securities industry is the third-largest contributor.

Lobbying over the rule is not entirely one-sided. Lobbying for the rule are the nonprofit AARP — previously known as the American Association of Retired Persons — and the American Association for Justice, a trade group for trial lawyers who stand to benefit from any litigation surrounding the rule.

But the financial industry’s lobbying pressure on Democrats is more intense than that from the rule’s supporters, said Bradley Miller, a former House Democrat who served on the Financial Services Committee. And Democrats' fundraising needs from the securities industry, he said, are likely to be felt more keenly as the elections near.

Recalling his time on the committee, Miller said, "You certainly knew what a lobbyist who [could] make decisions about PAC contributions" would want. “I did have lobbyists explain to me why my votes on certain bills was why they were not going to give to me that quarter, or election cycle, or ever.”

Ben White contributed to this report.