DOL fiduciary rule delayed 180 days by Trump directive

The move scrambles the fierce six-year battle over the rule, which would require financial advisers to act in the best interests of their clients in retirement accounts

Feb 3, 2017 @ 2:04 pm

By Mark Schoeff Jr.

President Donald Trump delayed the implementation of the Labor Department investment-advice rule by six months in a directive issued on Friday, casting doubt on its viability just as it was about to be put into practice.

The move scrambles the fierce six-year battle over the rule, which would require financial advisers to act in the best interests of their clients in retirement accounts.

During the Obama administration, proponents of the rule were firmly in control, with President Barack Obama strongly advocating the measure to protect workers and retirees from conflicted advice that leads to inappropriate high-fee investment products that erode savings.

Now financial industry critics of the rule, who contend that it is too complex and costly and would sharply increase the expense of giving and receiving advice, have the backing of Mr. Trump to overhaul the regulation.

The draft presidential memorandum instructs the DOL to conduct a new “economic and legal analysis” to determine whether the rule is likely to harm investors, disrupt the industry, or cause an increase in litigation and the price of advice.

(More: What you need to know now about Trump's plan to halt DOL fiduciary rule)

The memo said that if the DOL concludes that the regulation does hurt investors or firms, it can propose a rule “rescinding or revising” the regulation.

It also said that the DOL can work with the Department of Justice “to seek the stay of any litigation concerning [the rule].” The measure is the target of several industry lawsuits, including one in a Dallas federal court where the judge will issue a decision by Feb. 10.

A final memo had not been released by the White House as of 2 p.m.

“The rule is a solution in search of a problem,” White House spokesman Sean Spicer said in a press briefing Friday. “There are better ways to protect investors, and the Trump administration is taking action to do so.”

The Trump administration echoed industry arguments by saying that the rule would limit advice for investors with modest assets and that the DOL exceeded its authority in promulgating it.

Watch advisers' reactions

“This is exactly the kind of government regulatory overreach the president was put in office to stop,” Mr. Spicer said.

Financial industry trade associations applauded Mr. Trump's action. The Financial Services Institute, which represents independent broker-dealers and financial advisers, wants to scrap the DOL rule and start over.

“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,” FSI president and CEO Dale Brown said in a statement.

Mr. Trump's call for a review of the rule was also welcomed by the National Association of Insurance and Financial Advisors.

“Under this directive, the DOL will have to do a cost-benefit analysis with respect to annuities and not extrapolate from old mutual fund studies,” said Judi Carsrud, NAIFA's director of federal relations.

But the Financial Planning Coalition warned that the delay would be catastrophic for the regulation.

“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,” the coalition said in a statement. “Either one is a bad outcome for American retirement savers.”

(More: A comprehensive, searchable database of advisers' fiduciary FAQs)

Knut Rostad, president of the Institute for the Fiduciary Standard, said that Mr. Trump will face political pressure over the delay.

“It boggles the mind how an administration whose mission is to 'drain the swamp' and represent economically ailing voters, such as in the Midwest — that put it in office — can then make an about-face and oppose a rule that exists to help just these ailing voters,” Mr. Rostad said.

It's not clear whether the delay itself would be subject to a notice and comment period or whether that can be avoided because the delay was put in the context of pending litigation. Supporters of the rule will be parsing whether Mr. Trump's memo adheres to the Administrative Procedure Act.

“The law requires that agencies be as scrupulous in changing rules as the DOL was in adopting this rule,” said Barbara Roper, director of investor protection at the Consumer Federation of America. “The only reason to delay and kill this rule is to give a multibillion gift to the most powerful special interest group in Washington.”

Public Citizen, a liberal Wall Street reform group, also will be assessing the memo.

“Our legal department is prepared to take action, if [President Trump] is outside the legal boundaries,” said Bart Naylor, financial policy advocate at Public Citizen. “We're in new territory here.”

(Related read: The Trump Effect: How the president will impact financial markets)

On Capitol Hill, the reaction split along party lines.

“President Trump's action to delay the Obama administration's fiduciary rule for further study is a wise one,” House Speaker Paul Ryan, R-Wisc., said in a statement. “This regulation is deeply flawed.”

Sen. Sherrod Brown, D-Ohio, rallied for the rule.

“President Trump's action will make it harder for American savers to keep more of what they earn,” Mr. Brown said in a statement.

The fact that Mr. Trump himself rather than the White House chief of staff signed the DOL directive surprised one regulatory expert.

“This is a little unusual in that it's the president who is writing the memo saying we're going to extend the deadline for a particular rule,” said Susan Dudley, director of the Regulatory Studies Center at George Washington University.

Mr. Trump's participation illustrates how deep the passions have become on both sides of the fiduciary debate.

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