New Shade of Doubt Cast on DOL Fiduciary Rule Implementation

One early commentator tells PLANADVISER he expects the new DOL fiduciary rule will still be implemented, yet there is undoubtedly a new atmosphere of uncertainty with the presidential election result. 

“Bearing in mind that anything is possible, the most likely scenario we see is that the Department of Labor (DOL) fiduciary rule will move forward on its current schedule with implementation on April 10, 2017,” says Duane Thompson, senior policy analyst at fi360.

Joining a chorus of firms to share preliminary commentary with PLANADVISER, Thompson predicts that the Republican President-elect Donald Trump “may not even have a DOL secretary, or assistant secretary that runs the Employee Benefits Security Administration, nominated or approved by the Senate by April 10.”

Thompson further suggests it is “certainly possible” that when the new DOL secretary comes in, since the Best Interest Contract Exemption (BICE) and Principal Transaction requirements don’t take full effect until January 1, 2018, “this compliance deadline could be extended out.” In other words, it appears at least preliminary that there may be some relief coming on the strict contract and related recordkeeping requirements in the rulemaking. However this may not actually be viewed as a positive by all providers, as the election clearly puts the growing number of brokerage and advisory firms that have already made significant changes to compensation structures in a difficult spot. For example, Merrill Lynch just last week moved to completely halt commission-based brokerage sales of mutual funds to retirement account clients. Beyond this, literally dozens of providers, if not more, have in the last several years rolled out new tools and solutions specifically aimed at helping brokers and advisers comply with the tenants of the rulemaking. 

According to Thompson, the “option of falling back on an expedited legislative review process” also appears highly unlikely. 

“The Congressional Review Act says after a final regulation is published, Congress has 60 ­legislative days to act on a disapproval motion. Since Congress has already acted with a resolution to overturn the rule, and failed to secure passage earlier this year, due to a presidential veto, the CRA doesn’t appear to be a viable option for a Trump White House and the 115th Congress,” Thompson says. “Of course, the new Congress could start all over again and go through the regular legislative process by introducing a bill and going through an often time-consuming legislative process in both houses. That’s certainly possible, except that it runs the risk of having Senate Democrats blocking the measure.”

Thompson warns there is also an outstanding question of “whether industry would even lobby to overturn the rule since they would have to go back to square one and reconfigure their compliance systems and product lineups this far into the implementation process.”

“In addition, we haven’t heard a specific position from President-elect Trump on the DOL rule, although one of his campaign aides said it should be overturned,” he concludes. “It is certainly possible that a Trump Administration could look at ways to administratively broaden the safe harbors for conflicted advice or avoiding fiduciary status, but it would be extremely difficult to roll back the rule in its entirety.”

NEXT: Broader commentary is equally uncertain 

Commentary shared with PLANADVISER regarding the broader impact of the pending Trump presidency was equally uncertain, but investment firms in particular are urging Americans to respond with poise and a long-term perspective.

Stefan Kreuzkamp, chief investment officer at Deutsche Asset Management, suggests that Donald Trump’s victory has “definitely caught markets by surprise, as the initial market reaction shows.”

“We expect that market volatility should continue due to increased political uncertainty,” Kreuzkamp adds. “Trump’s unpredictability and his lack of political experience are more than enough reason to approach the coming months with some caution. Media coverage is likely to remain negative. Even if he were to follow through on only half of his vigorous campaign promises, this could cause considerable unrest.”

Despite that, Kreuzkamp stresses that investors should not lose their nerve.

“Let us not forget that the key constant in Trump’s election campaign was to continually surprise the public,” he explains. “It is entirely possible that after his election, he could in fact surprise markets on the positive side. Our hopes are based on Trump’s pragmatism, his ability to adapt and his generally limited political allegiance. There is a chance that he could allow the political veterans in Congress to pass a fairly classical Republican campaign program.”

Vanguard provided the firm’s perspective on the potential impact of President-elect Trump’s victory on the economy and the markets via a statement from Ann Combs, head of Vanguard Government Relations—and from and Roger Aliaga-Díaz, Vanguard Chief Economist for the Americas.

“Stay focused, keep perspective, and, above all, don’t make drastic changes to your portfolio,” they argue. “It’s important for investors and for our clients to remember that volatility increases in every election, particularly in years where there is a change of party in the presidency, and sooner or later markets always go back to fundamentals. The U.S. economy in particular has shown resilience compared to a much weaker global economic environment. We are optimistic about the long term.”

Commentary published by Bob Doll, senior portfolio manager and chief equity strategist at Nuveen Asset Management, highlights that a lack of clarity remains paramount in any discussion of Donald Trump’s presidency when it comes to financial markets.

“Regardless of people’s opinions about Hillary Clinton, her economic policies are transparent and offered a measure of certainty,” he writes. “Donald Trump’s statements have been vague and inconsistent. Financial markets tend to prefer clarity, so we think equity markets would have preferred a Clinton victory. We expect to see volatility rise, at least in the short-term.”