Post-election, the fate of the Department of Labor's fiduciary rule is in question. Confusion and speculation about how, when and if the rule will move forward threaten to distract firms from planning and preparing for its scheduled implementation in April.
While President-elect Trump has not stated a position on the rule, he has been vocal about his general intention to drastically reduce government regulation, and at least one of his advisers has confidently
stated the fiduciary rule will be “repealed.”
If the rule is going to be reversed, it would certainly be reasonable for firms to revisit decisions made based upon entirely different assumptions. But as Mark Twain famously declared, "It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so.”
All we know for certain is this: As of today, the compliance date for most of the DOL's rule is April 10, 2017, followed by the remaining requirements for two of the prohibited transaction exemptions on Jan. 1, 2018. That fact is the best starting point from which to consider alternative scenarios.
Based upon the many conversations I have had with executives at financial services firms of all sizes and types, most are moving forward to comply with the rule as we now know it. This is true despite the fact that almost no one expects the rule to simply sail through to implementation on time and without changes. Delay is likely, change is possible, and it is not out of the question that the rule could ultimately be killed or replaced.
Delay strikes me as a near certainty. All important new rules, including this one, will probably receive scrutiny by the new administration, but this rule will be particularly tough to change or kill because it is already effective and rapidly approaching compliance deadlines. Even so, the Trump administration will probably exercise executive authority to temporarily delay the compliance deadlines to buy time to evaluate how it could overturn or amend the rule.
Infinite delay isn't a realistic possibility, for two reasons. First, the rule would still exist, including the
best-interest contract exemption (BICE). Delay doesn't solve the problem, it perpetuates it. Second, proponents of the rule would almost certainly have legal options to challenge indefinite delay under the federal Administrative Procedure Act.
For the administration to significantly change or replace the rule, the DOL would have to initiate a new rulemaking. It is certainly possible that the DOL will revisit the rulemaking process once a new assistant secretary of the DOL's Employee Benefits Security Administration (which oversees the rulemaking process) is in place.
Keep in mind, however, that the current fiduciary rule was six years in the making. Even if the new administration acts at lightning speed (relatively speaking), we are still years away from final resolution, not months.
Legislative action is another path to change or kill the rule, but this requires coordination with Congress. Such legislation would also face strong opposition from the minority party. In other words, it is an even more arduous and uncertain path than rulemaking.
Finally, the wild-card scenario involves court challenges against the rule. Of the half-dozen lawsuits filed, the most important one still to be decided is the consolidated lawsuit in Texas. If that case is decided for the plaintiffs, it could throw a wrench into the whole works. Some observers have read the judge's remarks during the Nov. 17 hearing to suggest that she did not necessarily agree with the conclusions drawn by two other courts that rejected similar lawsuits.
But a win for the plaintiffs would not necessarily bring this saga to a close. Some of the rule's defenders in the private sector could step into the picture and appeal the decision even if the Trump administration were to decline to do so.
We all know that the marketplace hates uncertainty. Only one course of action by firms provides certainty — keep moving forward with preparations for the fiduciary rule in its current form.
In addition to regulatory realities, there are other reasons for firms to push forward. Companies that have already invested heavily in retooling their operations to meet the rule's requirements will be loath to discard the work they have done. Many have also announced that they now embrace fiduciary accountability in service to their clients; backtracking from that position
would be awkward if not brand-damaging. And, perhaps most importantly, with growing consumer awareness, fiduciary accountability is increasingly favored in the competitive marketplace.
All things considered, certainty trumps uncertainty. Both the knowns and the unknowns associated with the fiduciary rule favor a strategy to continue on the path of compliance with the rule as enacted.
Blaine F. Aikin is executive chairman of fi360 Inc.
