With the new President taking office this month, many may be wondering what lies ahead for the DOL Fiduciary Rule approved in April 2016. Rolling back regulations on businesses was a major campaign theme for President Trump, which now leaves firms wondering how that campaign promise may materialize. In President Trump’s 100-day plan, the DOL Fiduciary Rule was not specifically called out. It’s unclear what the priorities for the new administration will be, but certainly the DOL Fiduciary Rules will be on the list. The question is whether it will be sooner rather than later. Three months remain before phase one of the new rules go into effect. What should firms and advisors do while faced with the uncertainty created by the change in administration?
The window for the Trump Administration to take any action before retirement advisors would have to act is very small. The “go-live” date for the Rule is April 10. Presumably, most firms would want to have all necessary infrastructure and policies/procedures in place by at least April 1 to allow for any unforeseen complications requiring last minute alterations. Working backwards from April 1, firms should advise clients of any changes to migrated accounts by February 15 to ensure advisors are only fiduciaries to clients with fiduciary-appropriate products and services. This will provide plenty of time for any follow-on conversations with clients about their accounts, if necessary. Given the tight timeline and steps necessary to comply with the rule, firms do not have the luxury of waiting to see whether or not the Trump Administration will take action to stop the implementation of the DOL Rule. It is our opinion that firms must continue preparing for the DOL as if it will be enforceable on April 10, 2017.
With that said, there are few ways in which the DOL Fiduciary Rule could be nullified or delayed by the Trump Administration.
- Legislative Action – The current Chairman of the House Financial Services Committee, Jeb Hensarling (R-TX), introduced a comprehensive financial services reform package called the Financial CHOICE Act (H.R. 5983). It addresses many issues related to Dodd-Frank, CFPB, FSOC, and other rules/regulations affecting the financial services industry. Notably, Section 441 of the legislation would repeal the DOL Fiduciary Rule. Chairman Hensarling has indicated it is his intention to introduce this legislation again in the new Congress and is “cautiously optimistic” it will be considered “fairly early in the next Congress.” Furthermore, he has indicated publicly that while President Trump has not explicitly endorsed the legislation, he has indicated his support for similar measures. Realistically, the legislation is unlikely to become law given the threat of a filibuster in the Senate where Republicans hold a narrow majority. Additionally, Senator Elizabeth Warren (D-MA) is a vocal proponent for the DOL Fiduciary Rule, as are others, which will hinder the passage of such bills.
- Appropriations – Current federal appropriations, the money used to fund day-to-day activities of the government, expire on April 28, 2017. After that date, there will be no money to fund the federal government, unless Congress passes either a comprehensive appropriations bill to fund all branches of the government for the remainder of the fiscal year or a continuing resolution (CR) – a short-term funding mechanism which supplies the necessary money to keep the government operating for a pre-determined length of time. It is possible that a bill or CR may contain language prohibiting any federal funds from being spent on implementation or enforcement of the DOL Fiduciary Rule and the outstanding lawsuits. While such a measure would not technically repeal the Rule, it would render it toothless with enforcement. However, firms and retirement advisors should not rely on this scenario as an effective way to deal with the Rule for several reasons. First, the current appropriations expire after the Rule goes into effect on April 10. Second, we do not know for how long another CR would fund the government. Finally, the CR will be “must pass” legislation that is subject to a presidential veto. As such, given the imperative nature of federal funding, it is likely that Congress will try to avoid any controversial measures beyond the ones that are top priorities for the new administration, such as ACA, trade, border security, etc. in the negotiations.
- Repeal through Executive Action – It is possible for a newly-appointed Secretary of Labor (current nominee is Andrew Puzder, a fast-food executive) to attempt to repeal the Fiduciary Rule. However, given the current Rule went through the formal rule-making process, it is more complicated than simply having the new Secretary nullify the rule. It would require the new Secretary to propose a new rule to offset the existing one and then proceed through the formal rule-making process. Such a process often takes a year (or more) to complete. Furthermore, doing so would be politically difficult given the divisive nature of the rule.
- Delay Through Executive Action – This could be the most likely outcome, depending on the new Secretary’s priorities. The newly appointed Secretary of Labor could delay the effective enforcement date of the Rule for a pre-determined amount of time (30, 60, 90 days, 1 year, etc.). He would justify such an action in order to study the effects of the rule and reconsider the full implication of enforcement. Such a delay could be re-ordered indefinitely. This would give the new administration time to consider all options. However, a delay of enforcement would not negate the class action lawsuit provision currently set to take effect April 10 and could put firms and advisors at risk, if they do not comply with the fiduciary standard expectation.
Ultimately, President Trump and his new administration have a myriad of agenda items that need to be addressed in the days, weeks, and months after his inauguration. As of now, it is impossible to know which will be addressed first. Regardless of what happens with regulatory reform, as it pertains to the DOL Fiduciary Rule, it is North Highland’s opinion that retirement firms and advisors continue preparing as they would have given any other outcome of the election. The timeline for enforcement and nebulous path toward nullification leave limited room for error and could easily lead to non-compliance with a federal rule if companies do not take action. Additionally, “the train has already left the station.” Firms and advisors are already operating under a fiduciary standard, and large firms are touting their fiduciary standard in PR and advertising campaigns with clients and prospects. No matter what happens to the DOL Fiduciary Rule officially, the industry is already shifting – it is now a value proposition question and how to not be left behind and on the defensive with your clients.