Future of the Fiduciary Rule Under New DOL Secretary

Donald Trump has nominated an outspoken critic of federal government regulation as DOL secretary, placing more uncertainty on the future of the fiduciary rule, according to some observers. 

Since President-Elect Donald Trump’s victory in November, advisers and other service providers in the retirement planning industry have been keeping their eyes peeled on whom he would appoint to lead the Department of Labor (DOL).

Now, soon-to-be President Trump has nominated CKE Restaurants CEO Andrew Puzder as DOL secretary. Puzder is a vocal critic of many current government policies including the Affordable Care Act, the DOL’s pending overtime regulations, and raising the minimum wage. In media coverage he has spoken about the importance of leaving management of labor issues and other aspects of business regulation to the states.  

Although he hasn’t publicly commented on the DOL’s Conflict of Interest rule, he has written about how “overregulation” is harming the middle class. This resonates with the fiduciary rule’s biggest critics who argue that the policy’s reporting and compliance requirements will make client service prohibitively expensive, forcing brokers to abandon lower-income clients.

John Alan Doran, a partner at the law firm Sherman & Howard, believes Puzder will roll back as much of the Obama Administration’s “decidedly pro-labor agenda” as he can, with the full backing of President Trump.

“Overall he is a strong critic of government regulation, preferring market solutions to government intervention,” says Doran.

But how feasible would it be for Puzder to stop the fiduciary rule in its tracks before it’s rolled out on April 10, 2017? Some analysts argue it’s not likely. Although one Trump adviser went on record criticizing the rule, at the time of the publication of this article, the president-elect had made no official public comment on it.

Furthermore, the fiduciary rule may take a back seat as Trump builds his cabinet, fills an empty seat on the Supreme Court, and looks to cut more well-known programs, such as the ACA or perhaps some unrelated financial market regulations. However, Puzder may be able to reshape certain provisions of the rule to make it more business-friendly. “We can expect Mr. Puzder to do all in his power to recalibrate the employer/employee dynamic in pro-business paradigm that will make heads spin,” Doran says.

NEXT: Advisers Should Stay on Course 

The new Republican-controlled Congress is another player to consider. The legislative body could once again go through a process to attempt to strike down the rule, after a previous attempt ended in a presidential veto.  

Like the DOL, the new Congress would have to move very quickly to beat the fiduciary rule’s pending implementation deadline in April 2017. It is clear that both the industry and the DOL staff are hard at work bringing the rule into fruition—potentially wasted effort should the rule be gutted entirely. Even with these factors considered, many experts are urging advisers and firms to stay on course with executing strategies and leveraging technical solutions to meet compliance requirements in face of the DOL rule.

“We believe advisers need to continue to prepare for the DOL rule despite current speculation that it will not come to fruition because of the incoming administration,” says Wayne Withrow, executive vice president of SEI and head of the SEI Advisor Network.

Offering advisers insight on the fiduciary rule via a webcast hosted by consulting and accounting firm Grant Thornton, one consultant said: “We are recommending to clients that they should still steadily and carefully move towards the implementation. Sticking your head in the sand and hoping the regulation simply disappears is not a wise action.”

Other industry representatives are suggesting working with Puzder to ensure the DOL contributes to policies that will enhance Americans’ abilities to save for a comfortable retirement.

A statement shared with PLANADVISER by the Insured Retirement Institute (IRI) argued that Puzder will soon have the power to dramatically influence ongoing initiatives that are of key importance to the protection and well-being of individual investors. “This includes measures to improve Americans’ understanding of their retirement plan options and increase access to retirement income that cannot be outlived. We welcome the opportunity to meet with Mr. Puzder, to discuss our blueprint for retirement security, and find areas where we can work together to help American workers achieve a financially secure and dignified retirement.”   

It’s also important to note that Puzder may not have as direct an influence on the fiduciary rule as some may think. Actual enforcement of the fiduciary rule falls on the Employee Benefits Security Administration (EBSA), led by DOL assistant secretary Phyllis Borzi. Whomever will fill this seat under a Trump administration will also play a crucial role in the future of the fiduciary rule.