Details Emerge on Trump Order to ‘Review’ Fiduciary Rule
President Donald Trump signed an executive order Friday afternoon directing the Labor Department to undertake an assessment of its fiduciary rule, and if it deems appropriate, a proposal to revise the rulemaking, which industry officials say would delay the rule’s April 10 effective date.
Acting Labor Secretary Ed Hugler said in a statement that the DOL would “consider its legal options to delay the applicability of the date as we comply with the president’s memorandum.”
The final order “does not, in and of itself, repeal nor revise nor delay the rule,” said Skip Schweiss, head of advisory advocacy at TD Ameritrade Institutional, “though at least on delay, we can probably safely assume that’s coming.”
"Curiously, [the order] does not direct the DOL to extend the applicability date of the rule from April 10 to a later date," added Fred Reish, partner in Drinker Biddle & Reath’s employee benefits and executive compensation practice group in Los Angeles. "However, I assume that the department will automatically delay that date in order to allow sufficient time to do the analysis."
Nonetheless, Reish added, "it will be uncomfortable for the financial services sector to wait and see if the DOL actually delays the date. If the Department determines that the rule does adversely affect investors or retirees, it is further directed to rescind or revise the rule, as appropriate."
The draft order told DOL to delay the rule for 180 days, but that was taken out of the final order, which was issued on Friday. Industry officials anticipate that it will be up to the new Labor secretary to determine the amount of delay needed.
DOL was also directed to consult with the Department of Justice to consider staying the outstanding litigation.
The administration also told DOL to undertake an “updated economic and legal analysis of the rule, including analyzing potential harm to investors, disruptions within the retirement services industry, price increases to investors and increased litigation.”
Said Trump in the final order: "One of the priorities of my administration is to empower Americans to make their own financial decisions, to facilitate their ability to save for retirement and build the individual wealth necessary to afford typical lifetime expenses, such as buying a home and paying for college, and to withstand unexpected financial emergencies."
DOL's fiduciary rule, it continued, "may significantly alter the manner in which Americans can receive financial advice, and may not be consistent with the policies of my administration."
Erin Sweeney, a member at Miller & Chevalier, said that after performing an updated economic and legal analysis, the DOL is directed to “propose a new rule rescinding the rule, revising the rule, or proposing revisions to the related prohibited transaction exemptions,” with the proposed rule being subject to notice and comment.
After these measures are considered, “DOL can allow the rules to become applicable, modify them or withdraw them,” explained Reish.
“My best guess is that the evaluation will be done and then the department will obtain an additional extension to propose to modify the regulation and exemptions,” Reish added. “I think most of the focus of that work will be on the requirements of the Best Interest Contract Exemption.”
In sum, Reish said: "My predictions would be that the applicability date will be delayed; there will be a finding that the rule does adversely affect investors and retirees; and the rule will be revised."
At the Friday afternoon signing, Trump said that “We’re assigning core principles for regulating the United States financial system; it doesn’t get much bigger than that; do you want to explain it?" turning to Rep. Ann Wagner, R-Mo., a staunch opponent of the rule.
Wagner stated: “What we’re doing is returning control to the American people, lower- and middle-income investors and retirees, control over their own retirement savings. It’s about Main Street and it’s been a labor of love for me for four years; it’s a big moment for Americans.”
Trump added: “She means that so much.”
The delay, Wagner said in a statement, “will allow the administration to potentially repeal the rule entirely, and within this time, I will continue working toward a permanent solution in Congress through legislation to help preserve investment choice, access and affordability while ensuring all families are receiving investment advice that is truly in their best interest.”
As to the ongoing litigation, Judge Barbara M.G. Lynn, the judge presiding over the Texas case, said Wednesday that she would issue a ruling by Feb. 10. The U.S. Chamber of Commerce is among the plaintiffs, including the Securities Industry and Financial Markets Association and the Financial Services Institute that sued the DOL over its fiduciary rule in a Texas court.
“It is anticipated that the DOL and the DOJ will quickly move to stay all outstanding litigation pending over” the fiduciary rule, said Sweeney.
Ken Bentsen, president and CEO of SIFMA stated that Labor’s fiduciary rule “is flawed and is causing harm to retirement savers.”
Reiterating that SIFMA’s members “have long supported a best interest standard for brokers who provide personalized investment advice, … the DOL is not the right agency nor is the DOL rule the right approach. Delaying the applicability date to allow the new administration an opportunity to review the rule’s impact on investors and the market is appropriate and not without precedent.”
Trump signed an order the same day to roll back the Dodd-Frank Wall Street Reform and Consumer Protection Act.
The template for Dodd-Frank reform will be House Financial Services Committee Chairman Rep. Jeb Hensarling’s Financial Choice Act, which is expected to be reintroduced soon.
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