Gauging the Future of the DOL Fiduciary Rule in the Trump Era

By John Iekel • January 12, 2017 • 0 Comments
With the presidential election victory of Donald Trump and the success of Republicans in holding majorities in both the House of Representatives and the Senate, the immediate future of the Department of Labor’s fiduciary rule has been cast into some doubt. A recent analysis explores what its prospects may be.

In “What Are Trump’s Options for Changing the Rule?” Jon Vogler, a Senior Analyst, Retirement Research, at Invesco Consulting, notes that while the fiduciary rule was not on candidate Trump’s radar screen, it was on that of others in the campaign — and that a staff advisor said a few months ago that repeal was on the mind of a Trump administration.

The West Wing

Vogler posits that the new president issuing an executive order stating that the DOL would only minimally enforce the rule is an option. For instance, he suggests, failure to comply with the rule and accompanying guidance technically would be a violation, but the order could indicate that the DOL would not punish such infractions.

There is an important caveat to this scenario, Vogler warns: Even if the DOL does not enforce the rule, retirement plan investors still could sue via class action. “Therefore, downplaying the DOL’s enforcement role may not have a calming effect, given that people expect lawsuits to drive financial firm behavior under the rule,” he says.

DOL

The Trump DOL could revoke or revise the rule, notes Vogler — but it may be easier said than done. He notes that doing that would entail a lengthy rule-making process like that which went on before it was adopted.

Rather, Vogler suggests, the DOL could also issue interpretive to provide more flexible interpretations of ambiguous aspects of the rule. Or it could delay the April 10, 2017, applicability date, although he admits that “might be something of a stretch” because “prior administrations have delayed the effective dates of rules that were not already effective, but the fiduciary rule technically became effective on June 7, 2016.”

On the Hill

Congressional action would be another way to stop the rule, notes Vogler. He argues Congress could:

  • enact a law to end the rule;

  • withdraw the provision in the rule that creates the right to pursue a class action lawsuit against a financial institution for fiduciary breaches; or

  • thwart the rule through the appropriations process.

On the Docket

Legal challenges to the rule are alive and well, Vogler notes. “It is possible that one (or more) of those cases could come down in favor of the plaintiff’s motion to overturn the rule,” he says. Another possibility, he adds, is that the Trump administration could stop defending the rule in current lawsuits.

Preparations Ongoing

Despite the prospects for defanging if not derailing the rule, with uncertainty regarding how high a priority the new administration will place on examining and acting on the rule, and with firms half way into implementation and already having made many decisions and announced regarding how they will proceed under the rule, Vogler argues that “there may not be as much of an appetite to discard it and start from scratch.”

Accordingly, Vogler says, “The consensus among the financial services industry as of this writing seems to be that firms should continue their efforts to comply with the fiduciary rule; stopping now and waiting to see what the Trump administration may or may not do could backfire if nothing happens between now and the April 10 implementation date.”




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