DOL faces tough road in revising or repealing fiduciary rule

Any significant changes would likely spur a lawsuit, and the courts have been tougher on regulators when they reverse course on rules after a new president comes into office

Apr 13, 2017 @ 2:08 pm

By Mark Schoeff Jr.

+ Zoom

As the Department of Labor begins to review its fiduciary duty regulation, it faces a daunting road ahead to modify or repeal the measure.

If the agency makes changes — as the Feb. 3 directive from President Donald J. Trump seems to foreshadow — it could generate lawsuits from proponents. But the DOL will not get the same benefit of the doubt from the courts in that round of lawsuits that it has in current litigation brought by opponents of the rule.

The DOL has been undefeated so far in court defending the rule in part due to something known as Chevron deference. That principle arose out of a 1984 Supreme Court case, Chevron U.S.A. Inc. v. Natural Resources Defense Council Inc., in which the court ruled that the Environmental Protection Agency's interpretation of the Clean Air Act was "entitled to deference." Since then, courts have given agencies the leeway to enforce their own regulations if there's any ambiguity surrounding them.

But the courts have been tougher on regulators when they change their mind on rules after a new presidential administration comes into office.

At the beginning of President Ronald Reagan's administration, the National Highway Transportation Safety Administration tried to scrap a rule from the Jimmy Carter administration requiring passive restraints, such as automatic seat belts or airbags, in vehicles. In Motor Vehicle Manufacturers Association v. State Farm Insurance, the Supreme Court ruled that the action was "arbitrary and capricious." The court held that NHTSA failed to prove that taking the regulation off the books was necessary.

"An agency changing its course by rescinding a rule is obligated to supply a reasoned analysis for the change beyond that which may be required when an agency does not act in the first instance," the court wrote in its opinion.

The next few months could be arduous for the Trump Labor Department.

"It is a difficult exercise to make a substantial change in a rule that an agency has adopted," said Robert Plaze, a partner at Proskauer Rose and a former Securities and Exchange Commission official.

Adding to the DOL burden is its accelerated time line. It says it will reassess in a few months a rule that took six years to finalize — and do so, for the time being, without leadership at the top. Mr. Trump's nominee for DOL secretary, Alexander Acosta, awaits a Senate confirmation vote.

"The deck is really stacked against the DOL," said Erin Sweeney, a member at Miller & Chevalier and a former DOL senior benefits law specialist. "You've got to get [a review] done quicker and to a higher standard and with gaps in leadership. It's a recipe for disaster for them."

Seeking to extend the delay would be a challenge because the DOL used the same cost study in the delay rule as it did in the final rule last year, according to Joshua Lichtenstein, an associate at Ropes & Gray.

In the rule seeking a 60-day delay, the DOL said pushing back the implementation date would cost investors $147 million over one year and $890 million over 10 years.

"It would be difficult to get another delay," Mr. Lichtenstein said. "A 180-day delay would have gotten into billions of dollars."

In the end, the rule may come out less scathed than anticipated — something advisory firms should keep in mind.

"Use this extra time to make sure you're ready to comply," Mr. Lichtenstein said.

0
Comments

What do you think?

View comments

Recommended for you

Featured video

INTV

Help special needs families get started on a lifetime of planning

Managing editor Christina Nelson talks with special projects editor Liz Skinner about specialists who say any adviser can and should get the financial ball rolling for people in this community.

Video Spotlight

Path to growth

Latest news & opinion

A special need for financial advice

Advisers don't have to be experts to help special needs families get a jump on lifelong planning.

Broker-dealers and RIAs at loggerheads over fiduciary rule delay

Companies and groups weighing in with comment letters have vastly different viewpoints on the delay's potential impact.

7 conferences taking advisers beyond financial services

Consider investing some time in learning to build corporate culture, be a better listener and other important skills.

SEC warns RIAs about exaggerating investment performance and other misleading advertising practices

The regulator's Office of Compliance Inspections and Examinations issued a risk alert Thursday about potential violations of advertising rules.

Cerulli: Advisers increasingly outsourcing portfolio management

According to Cerulli, 54% of CFPs outsource portfolio management, and 46% keep it in-house.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print