Fiduciary Rule Double-Take Leaves Retirement Industry Perplexed

The Trump White House has clearly tried to label itself as pro-business, but the effort to halt the fiduciary rule has so far injected more confusion than clarity for advisory firms. 

By John Manganaro | February 06, 2017
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Late last week rumors started to swirl that Republican President Donald Trump would directly order the Department of Labor (DOL) to delay the effective implementation date of the fiduciary rule reform championed by the previous Democratic administration.

There were even reports written directly from a draft version of a presidential memorandum that would have done just that—citing a specific 180-day delay in the effective date of the rulemaking. Many reporters and businesses evidently saw this draft, because even before a final version of the memo was officially shared by the White House, scores of industry providers had already written to PLANADVISER expressing their varying opinions about what the 180-day delay meant, and about what could come next.

In the end it would have been best to wait to see the final copy, as the 180-day delay, which was interpreted by many to be the key action-point coded into the memorandum, was removed. This left many in the industry wondering exactly what would come out of the memo, which in the end only ordered a review of the rulemaking to determine what its impacts on investors might be.    

It was particularly telling to see trusted Employee Retirement Income Security Act (ERISA) attorneys have to re-adjust commentary that had been written based on the draft memo. One firm, the Wagner Law Group, captured the unexpected change well.  

“We would like to update the ERISA LAW ALERT sent earlier today. In the Alert, which was based on a draft version of the Executive Memorandum, we stated that the DOL Fiduciary Rule would be delayed for 180 days. The final version of the Executive Memorandum, like the draft, directs the DOL to review the Fiduciary Rule, but unlike the draft, does not specify the time period for review or the length, if any, of the delay. In other words, the 180-day delay period was specifically removed. We understand that interested trade groups are working to obtain clarification from the White House as to what this means,” the law firm explains. “As it stands, the final version of the Executive Memorandum does not, in and of itself, repeal, revise or delay the Fiduciary Rule.”

As the Wagner Group attorneys explain, the DOL will have to determine whether and how a delay may or should be implemented. “This leaves financial services firms in the difficult situation, for the moment, of not knowing with 100% certainty if there will be an extended applicability date or not.”

If the DOL determines that the fiduciary rule is inconsistent with Trump Administration policy, it may issue for notice and comment a proposed rule rescinding or revising the DOL fiduciary rule and the best-interest contract (BIC) Exemption. Wagner attorneys predict the DOL may also take action to stay the litigation currently challenging the DOL fiduciary rule and its exemptions, but again all this is left up in the air right now.

On the Wagner attorneys’ interpretation, one possible effect of a delay would be that the Securities and Exchange Commission (SEC) becomes more involved in the process, so that there would be a uniform definition of fiduciary and a uniform standard enforced by both the DOL and SEC.

“It is worth noting that a bill known as the Financial CHOICE Act, passed by the House Financial Services Committee in September 2016, proposes the incorporation of the DOL Fiduciary Rule into the Retail Investor Protection Act (a bill passed by the House in 2016) and requires the SEC to take the driver's seat on fiduciary rulemaking,” the attorneys observe. “Before the review process has even commenced, it is premature to speculate as to the conclusions that the DOL will reach, although it is highly unlikely that the DOL fiduciary rule and related exemptions such as BIC will survive in their current form, in light of President Trump's clear willingness to dismiss government officials unwilling to conform to his agenda.”

NEXT: Some still pushing for the rule