What’s next for the DOL fiduciary rule

It’s fitting that the drama surrounding a Labor Department investment advice rule continues to play out this week and perhaps for months to come just like a reality television show, a genre perfected by President Donald Trump.
The presidential memo to DOL that Mr. Trump signed last week instructed the agency to review the regulation, which would require financial advisers to act in the best interests of their clients in retirement accounts.
It calls on DOL to assess, among other things, whether the rule prevents retirement savers from accessing advice or threatens financial firms with a flurry of lawsuits — two arguments the industry often makes in attacking the rule. If the agency finds that harm is being done to investors or firms, it can then modify or replace the measure through a rulemaking process.
What Mr. Trump’s memo does not do is delay the rule’s April 10 implementation date.
That step must be taken by Acting DOL Secretary Edward Hugler, who said last week he’s looking into his legal options.
What happens next may have been telegraphed in a draft presidential memorandum that was circulating widely in Washington last Friday.
Under that directive, Mr. Trump himself would have told DOL to delay the rule for six months in light of litigation surrounding the measure. It also would have told DOL, in cooperation with the Department of Justice, to seek a stay in the legal proceedings.
But it turns out the DOL must make those moves; they can’t be mandated from the White House.
That means we may see more plot twists that will keep everyone guessing.
First, Mr. Hugler will seek a delay in the applicability date of the rule in order to give the agency time to conduct the new cost-benefit analysis Mr. Trump is calling for.
The question is whether Mr. Hugler will invoke the “good cause” exception in the Administrative Procedure Act that would allow DOL to achieve the delay without going through a notice-and-comment period.
If he goes that route, he may run into resistance from backers of the rule, who assert it is necessary to protect workers and retirees from high-fee investments that erode savings.
“There are clearly some strong proponents who might be tempted to challenge the ‘good cause’ exception,” said Hillel Cohn, a partner at Morrison & Foerster. “Who knows how any individual judge may rule?”
Let’s say DOL gets a six-month delay in the implementation date. Now it must conduct a complicated cost-benefit analysis while the leadership of the agency is in transition.
A Senate hearing for Mr. Trump’s nominee for DOL secretary, Andrew Puzder, has not been scheduled, as he gets his paperwork in order.
“It’s hard to see how an agency undertakes this kind of thoughtful analysis over a six-month period without a secretary of labor in place,” said Erin Sweeney, a member at Miller & Chevalier.
Supporters of the DOL rule will be watching closely. They may do the same thing to the DOL cost-benefit analysis that former Securities and Exchange Commissioners did to that agency’s 2011 fiduciary-duty study: object that the regulatory impact wasn’t properly calculated.
Perhaps that fight could find its way to court. Or maybe DOL will try to avoid that outcome by extending the delay again to give itself more time for the analysis.
That approach has its own risks.
“There’s going to be some pressure on the agency to get this done,” Ms. Sweeney said. “You can’t just delay implementing rules forever.”

Related Topics: Securities and Exchange Commission