While President Donald Trump's order on Friday for a regulatory freeze doesn't pertain to an investment-advice regulation issued under the Obama administration, it has led financial-industry stakeholders and analysts to engage in a dizzying guessing game on the rule's fate.
Many believe the U.S.' new president will take action against the Department of Labor's fiduciary rule, the implementation date of which begins April 10, but its form is still a mystery.
“I think there's an expectation the applicability date will be delayed at least 60 days,” according to Andrew Remo, director of legislative affairs for the National Association of Plan Advisors. “How that's achieved is anyone's guess.”
Most anticipate two courses of action as most likely: the Department of Labor will propose to delay the rule, which would need to go through a public notice and comment period; or the Trump administration may issue an order delaying the fiduciary rule, and potentially other regulation, under an “interim rule,” which wouldn't require public comment.
“I have heard there's a follow-up order coming,” Brian Gardner, managing director and Washington policy analyst at Keefe, Bruyette & Woods Inc., said of an interim rule that would follow the president's initial regulatory freeze. “It's not clear to me whether a follow-up order would include the DOL rule or not.”
The Trump team can pursue such a course, and circumvent the need for public comment, if it can show “good cause” for a delay.
Agencies frequently pursue this sort of action if a new regulatory requirement that's deemed important is needed on a short-term basis and the agency can't wait for the typical process under the Administrative Procedure Act, Mr. Gardner said.
The administration can argue industries impacted by the rule, such as the brokerage industry, need more time to adapt their internal systems for compliance, and retirees would be ill-served otherwise, Mr. Gardner said.
“It's very possible for DOL, in my view, to issue this interim rule if it can show good cause,” according to Mr. Gardner.
The Trump administration may also seek to formally propose a rule that would delay the implementation date of the rule, which raises investment advice standards in retirement accounts.
Proponents of the rule have argued the rule is necessary to protect retirement investors from high-fee investment products that erode their savings. Opponents say the rule is overly complex and burdensome, and would increase the cost of giving and receiving advice.
Congressional Republicans and several trade organizations representing the financial services industry have been fighting to delay the rule's applicability date or kill the rule outright. Many have indicated a delay of the rule would ultimately spell its demise.
“They are legally obligated under the Administrative Procedure Act to go through notice and comment if they want to delay it though the regulatory process,” said Barbara Roper, director of investor protection at the Consumer Federation of America. That obligation arises because the rule technically became effective in June.
However, under the APA, the DOL would have to “engage in a reasoned analysis based on relevant factors” in order to delay the rule, Micah Hauptman, financial services counsel at the Consumer Federation of America, said.
“They can't just say, 'We don't like this rule, we decided to delay it so we have time to kill it,'” Mr. Hauptman added.
This rule-making path appears to be most likely, according to Mr. Gardner of KBW.
It's a similar route to one the Obama administration took to ultimately revise a separate investment-advice rule issued during the end of the George W. Bush administration, according to Michael Hadley, partner at Davis & Harman, a lobbying firm for financial services organizations.
The Obama administration ultimately delayed the rule three times in 2009 after receiving public comments, withdrew it, and re-proposed it in a revised form, Mr. Hadley said.
And while that particular rule hadn't yet been effective, an important distinction from the fiduciary rule, the Trump administration may use a similar approach.
“It's a really good precedent for what might happen here,” he said.
There are also additional avenues, which industry watchers see as less likely.
For one, some believe the DOL may seek a stay in the ongoing litigation in Texas against the fiduciary rule, which would effectively halt the rule as the litigation proceeded in court. But some don't believe that approach would be effective.
“That would be a bizarre about-face, and courts have been weary of agencies doing legal 180s just because of changes in administration,” Mr. Hauptman said.
The Insured Retirement Institute, Financial Services Institute, U.S. Chamber of Commerce, and Securities Industry and Financial Markets Association, which are plaintiffs in the lawsuit, weren't immediately able to respond to requests for comment.
Further, “it is certainly possible the DOL will interpret the chief-of-staff memo liberally, and interpret it as a direction to delay regulations that are not yet applicable,” Mr. Hadley said, in reference to Friday's regulatory-freeze memo.
Ms. Roper also questioned if the administration may use this approach.
“Will they worry about the legal niceties? Will they bother with careful compliance with the ACA that industry demanded of DOL when they were adopting the rule?” she asked.
Of course, there's also the legislative route, with one bill having been proposed in Congress to delay the rule.
However, at least eight Democratic senators would need to vote for a bill in order to avoid a filibuster, according to Mr. Remo of NAPA.