Trump administration must overcome obstacles to kill DOL fiduciary rule

The new president-elect cannot simply rip up the regulation, which became effective in June

Nov 10, 2016 @ 1:48 pm

By Mark Schoeff Jr.

+ Zoom

If the Trump administration wants to kill a Labor Department investment advice rule, it will take some hard work.

The new president-elect cannot simply rip up the regulation, which became effective in June and requires financial advisers to act in the best interests of their clients in retirement accounts. Trying to scrap it through the legislative process also can be a heavy lift.

“It's hard to write a regulation, which bothers people who like regulation, and it's hard to get rid of a regulation, which bothers people who don't like regulation,” said Stuart Shapiro, a professor of public policy at Rutgers University.

Donald Trump's victory on Tuesday has given new momentum to opponents of the rule, who are currently pursuing litigation to stop it.

“Based on the results of the election, the future of the DOL rule is uncertain,” said Dale Brown, president and chief executive of the Financial Services Institute. “We're exploring other avenues available on [Capitol] Hill and in the new administration to fix the problems with the rule or repeal it entirely.”

In order to take a regulation off the books, a new administration must propose a new rule and go through the full regulatory process, which involves putting the measure out for comment, modifying and then finalizing it.

“It will take at least a year — and if you want to do something legally sound, probably longer,” Mr. Shapiro said.

Alternatively, the Trump administration could issue an emergency rule that would delay implementation of the current rule, which is scheduled to start on April 10.

“That would give them more time to pursue another strategy,” Mr. Shapiro said.

That could be the tack taken by the financial industry, which opposes the rule because it asserts that it is too complex and costly. The Obama administration argues it is needed to protect workers and retirees from conflicted advice that erodes retirement savings.

“We believe it is very important for the new administration to delay the applicability date of the fiduciary rule for at least a year,” Kent Mason, a partner at industry lobbyist Davis & Harman, wrote in a recent note to clients.

Mr. Mason points to the Obama administration in 2009 delaying for several months a Bush administration fiduciary duty rule and later withdrawing it. The Bush regulation, however, had not yet become effective when President Barack Obama took office.

A more efficient way to kill the DOL rule is through legislation.

A bill written by House Financial Services Chairman Jeb Hensarling, R-Texas, to overhaul the Dodd-Frank financial reform law, for instance, includes a provision that would force the DOL to halt its rule until the Securities and Exchange Commission acts on a similar measure that applies to all retail investment accounts.

Even though Republicans control Capitol Hill, Mr. Hensarling's bill would face an obstacle in the Senate, where Democrats retained enough members following the election to sustain a filibuster.

“Elizabeth Warren will go to war over this,” said Dan Barry, founder of Atlantic Policy Solutions, referring to the Democratic Massachusetts senator who is a champion of the DOL rule.

A potentially easier legislative route is through the appropriations process. In recent years, opponents of the DOL rule have attempted unsuccessfully to attach a rider to funding bills that would prevent the DOL from enforcing the fiduciary rule.

In December, they will have another chance, when Congress must pass a budget bill to keep the government funded. But until Jan. 21, President Obama could veto a measure that includes a DOL rider.

If the lame-duck Congress passes another short-term funding bill, the new Congress in 2017 could then try again with a rider. This time, it would be on an appropriations measure ultimately heading to a President Trump.

It's less likely Democrats would block a budget bill.

“The budget rules make it easier to get through than free-standing legislation or legislation like Hensarling is proposing,” Mr. Shapiro said. “Filibustering a budget bill is not something you see all that often.”

It's difficult to predict what move Mr. Trump will make on the DOL rule — or whether he'll leave it alone.

“If anything, Trump uses it as a bargaining chip — a bone to throw to Democrats — to leverage it to get something else done,” said Brian Menickella, managing partner at the Beacon Group of Companies.

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