Despite reports that the Department of Labor (DOL) was ordered by President Donald Trump to delay the implementation of the fiduciary rule by six months, the final memo to the agency did not contain such an order.
In the memorandum, Trump says the DOL fiduciary rule may significantly alter the manner in which Americans can receive financial advice, and may not be consistent with the policies of his administration.
The memo directs the DOL to examine the fiduciary rule to determine whether it may adversely affect the ability of Americans to gain access to retirement information and financial advice. As part of this examination, he ordered the agency to prepare an updated economic and legal analysis concerning the likely impact of the fiduciary rule, “which shall consider, among other things, the following:
- Whether the anticipated applicability of the Fiduciary Duty Rule has harmed or is likely to harm investors due to a reduction of Americans’ access to certain retirement savings offerings, retirement product structures, retirement savings information, or related financial advice;
- Whether the anticipated applicability of the Fiduciary Duty Rule has resulted in dislocations or disruptions within the retirement services industry that may adversely affect investors or retirees; and
- Whether the Fiduciary Duty Rule is likely to cause an increase in litigation, and an increase in the prices that investors and retirees must pay to gain access to retirement services.”
Trump goes on to say that if the DOL makes an affirmative determination as to any of the considerations or if it concludes for any other reason after appropriate review that the rule is inconsistent with the priority of Trump’s administration, then the DOL should publish for notice and comment a proposed rule rescinding or revising the rule, as appropriate and as consistent with law.
Of course, this review could lead to a delay in, or even halt of, implementation of the rule.
NEXT: Halt of rule won’t change momentum
Industry responses have been fast and furious—with a clear consensus building around the idea that halting the DOL rulemaking won’t stop outright the momentum that has been building around increasing the fairness and transparency of advisory models.
Lockton Retirement Service’s head of legal and regulatory affairs, Samuel Henson, said he expects the rule to undergo major changes or to be completely scrapped, but even its outright repeal won’t undo the industry landscape it leaves behind.
“The impact of that rule will not go away,” Henson feels. “The amount of time and effort that has already gone into compliance with that rule by financial services companies is going to have a lasting impact. I think a lot of people had decided to become ERISA fiduciaries, or at least to act more as such." And that is a positive thing.
Even with his optimism that firms will continue to improve their business practices from the point of view of transparency and eliminating conflicts of interest, he admits the picture has changed with President Trump and the Republicans in charge of Congress: “Will the legacy of the rule survive exactly as it stands right now? I doubt it.”
Tom Reese, adviser with Conrad Siegel Investment Advisors in Harrisburg, Pennsylvania, agrees that many firms may “still put in a good faith effort to meet similar standards.” Just what this looks like will vary from firm to firm, “but there remains something to be said about the willingness to commit to the fiduciary relationship.”
“Many firms have invested a lot of time and money to be in compliance with the DOL’s fiduciary rule,” he tells PLANADVISER, “so it is unlikely that these companies will just go back to business as usual. Some firms may decide not to fully abide by the fiduciary rule as it was proposed, but they will likely try to eliminate conflicts and put in a good faith effort to meet similar standards.”
NEXT: Wait-and-see attitude pays off
Firms that have been in a wait-and-see mode regarding making big investments to improve compliance process and change advisory fee models probably feel pretty well-vindicated right now, Reese notes, but they may still find a need to make such changes further down the line as their competitors start to market their willingness to be a full-fledged fiduciary. For firms that will continue to provide commission-based services that may have potential conflicts, it will be harder to compete, Reese speculates.
It should be stated that Reese and the others who have come down in favor of strengthening the DOL advice standards have their own car in the race: As an independent registered investment adviser he serves as a fiduciary and does not receive commissions. He says this is the “clearly the less conflicted model,” and so if/when the DOL rule is fully eliminated, “we would certainly continue to provide this same level of service.” Others will do the same.
He further speculates that with the fiduciary rule postponed, the burden of closely watching and assessing the performance of service providers will fall even more on the shoulders of plan sponsors and participants. “There is even more pressure on employers to make sure that they are taking a proactive approach to meeting their own fiduciary responsibility,” he explains. “Hopefully, this past year gave employers a better understanding of what they need to look out for to act as fiduciaries for their plan participants. Employers will need to continue to take steps to make sure that they are regularly reviewing their retirement plan. This would include developing an investment policy statement and regularly reviewing share class, fee benchmarking, and performance of the plan investments.”
Reflecting the contentious political environment that led to this turn of events, others in the industry have taken essentially the opposite view of Reese—and yet others have argued for a middle ground, suggesting that the DOL rulemaking was perhaps flawed, but a uniform fiduciary standard that is more thoughtfully constructed could work. For example, the Financial Services Institute (FSI) shared a beaming endorsement of the President Trump’s move to halt the current rulemaking, penned by FSI President and CEO Dale Brown.
“On behalf of the retirement savers who depend on their financial advisers, we applaud the president’s action, which will delay a rule with devastating consequences for so many people,” Brown says. “Our members pride themselves on working in the best interest of their clients. FSI has supported a uniform fiduciary standard since 2009—before Dodd-Frank became law. We stand ready to work with the president and his administration to put in place a uniform fiduciary standard that protects investors, while not denying quality, affordable financial advice to those who need it most.”
NEXT: Clear and conflicting viewpoints
Brown suggests the Department of Labor fiduciary rule “would have not only made it harder, but impossible, for many hard-working Americans to access critical retirement advice.”
Other industry groups to quickly weigh in included the Financial Planning Coalition (FPC), made up of the Certified Financial Planner Board of Standards, the Financial Planning Association and the National Association of Personal Financial Advisors. Suffice it to say, FPC is strongly critical of President Trump’s decision to cease the implementation of a rule that has been a decade in the making.
“The Financial Planning Coalition strongly opposes the action taken today by President Trump to halt the Department of Labor’s final fiduciary rule that will protect millions of Americans saving for retirement,” the group writes to PLANADVISER. “With just two months to go before its implementation date, the President has effectively given the green light to maintain the status quo of conflicted financial advice.”
It is the position of the FPC that, by issuing this memorandum, the president is “directing the Department of Labor to produce an outcome that will likely lead to either a complete gutting of this thoroughly vetted consumer protection or lead to its outright demise. Either one is a bad outcome for American retirement savers … We applaud those firms and individuals who have already acknowledged the rule’s benefit to consumers and taken action to comply with the DOL fiduciary rule.”
The Investment Company Institute (ICI), the advocacy group that represents the interests of mutual fund companies, shared a statement from Paul Schott Stevens, more or less to the effect that DOL had the right idea in mind in crafting the fiduciary rule—but failed in its approach.
“These executive orders begin an important, overdue process to revisit and reform aspects of the regulatory regime that are overly complex, burdensome, and costly,” Stevens argues. “The Administration should use this time to address flaws in the rule and pursue a harmonized standard across the retail and retirement marketplace, coordinating with the Securities and Exchange Commission to ensure investors’ best interests are paramount.”