Trump Directive on Fiduciary Rule

February 8, 2017

On Feb. 3, President Donald Trump signed a directive telling the U.S. Labor Department (DOL) to halt implementation of rules targeting conflicts of interest in the retirement-saving industry. The Fiduciary Rule, facing challenges in several federal courts, is set to take effect on April 10, 2017.

The Memorandum directs the DOL to review the fiduciary rule, but does not specify a time period for the review or the length, if any, of a delay, nor does it direct the DOL to seek a stay of the litigation surrounding the rule. Specifically, the memorandum directs the Secretary of Labor to do the following:

  • Prepare and update an economic and legal analysis of the impact of the rule, taking into consideration:
    • whether the rule has harmed, or is likely to harm, investors due to reduced access to advice and other services;
    • whether the rule has resulted in dislocations or disruptions that may adversely affect investors and retirees; and
    • whether the rule is likely to cause an increase in litigation and an increase in prices for retirement services.
  • Issue a proposed rule rescinding or revising the rule if the DOL makes an affirmative determination on any of these points, or otherwise concludes the rule is inconsistent with the administration’s priority to “empower Americans to make their own financial decisions, to facilitate their ability to save for retirement and [to] build individual wealth.”

This memorandum seems to be part of the administration’s stated goal of making financial regulation more effective, efficient, and tailored, and it was issued at the same time as the Executive Order on Core Principles for Regulating the United States Financial System, the president’s first official action on the Dodd-Frank Wall Street Reform and Consumer Protection Act.

On April 6, 2016, the DOL issued a final rule defining who is a fiduciary investment advisor of an employee benefit plan under the Employee Retirement Income Security Act of 1974. The final rule requires financial advisors and brokers handling 401(k) accounts, as well as Individual Retirement Accounts and Annuities (IRAs), to put their clients’ best interest before their own profits. As a fiduciary, they will be held to a higher standard than what most retirement advisers adhere to today—a lesser “suitability” standard that lets them recommend products that are suitable but not necessarily in their clients’ best interest.

The next step is for the DOL to determine how to implement the presidential directive. This will likely be through a notice in the Federal Register within the next few days or weeks, possibly proposing a delay and requesting comments on the issues raised by the memorandum.

While the final rule made some concessions to the concerns of the small-business community and financial sector, the underlying regulation will reshape industry business models, drive litigation and potentially lock out small businesses and lower-income people from getting financial counseling and solutions to meet their retirement planning needs. This rule would significantly increase liability risk and regulatory costs for brokers. NSBA has said that it would make giving and receiving advice much more expensive, potentially ending access to advice for people with modest accounts. The costs to firms and advisors of implementing such a complex rule will result in higher costs and reduced access to advice, service and products for retirement savers. This will likely result in fewer plans, fewer participants and lower overall retirement savings.