Trump Orders DOL To Weigh 'Fiduciary Rule' For Flaws That Could Lead To Revisions Or Outright Scuttling
President Trump signed a presidential memorandum on Friday ordering the Labor Department ( DOL ) to review its controversial new fiduciary rule and which could lead to rescinding or revising the rule. The rule is intended to stop conflicts of interest by financial advisors and brokers who give retirement advice.
The White House memo was widely reported to order DOL to delay implementation of the rule. But the signed memo appears to stop short of demanding delayed implementation outright. Instead, it directs the Secretary of Labor to examine the fiduciary rule and begin a process of rescinding or revising it only if DOL finds that the rule has any of three impacts:
- has harmed or is likely to harm investors due to a reduction of access to certain retirement savings products, accounts or information.
- has "resulted in dislocations or disruptions within the retirement services industry that may adversely affect investors or retirees".
- "is likely to cause an increase in litigation, and an increase in the prices that investors and retirees must pay to gain access to retirement services."
InvestmentNews reported that the signed memo called for the analysis, unlike a draft of the memo, which called for an outright implementation delay.
The fiduciary rule is slated to take effect on April 10.
The rule would require brokers and advisors to recommend investments that are in the best interests of clients, not merely suitable for them. That is how fiduciaries are obligated to act. As a result, the new rule would require brokers and advisors to put their clients' best interest before their own profit.
Critics of the new rule say it would cause precisely the sorts of problems that the Trump memo directs DOL to weight. A key criticism is that it would make some retirement investment advice unaffordable by middle-income families. Critics also charge that the new rule exceeds the Labor Department's authority.
The Financial Planning Coalition - which consists of the Certified Financial Planner Board of Standards, the Financial Planning Association and the National Association of Personal Financial Advisors - condemned Trump's action.
In a release, the Coalition said, "The Financial Planning Coalition strongly opposes the action taken today by President Trump to halt the Department of Labor's Final Fiduciary Rule that will protect millions of Americans saving for retirement. With just two months to go before its implementation date, the President has effectively given the green light to maintain the status quo of conflicted financial advice."
The Coalition statement added, "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. Either one is a bad outcome for American retirement savers."
The Coalition's constituent members hold themselves to a fiduciary standard when they are providing financial planning services, says Maureen Thompson, vice president of public policy for the Certified Financial Planner Board of Standards. They see the rule's implementation as a way to level their competitive playing field with advisors and brokers who are not fiduciaries.
The Investment Company Institute supported Trump's action. In a statement, ICI President and CEO Paul Schott Stevens said, "(The) ICI supports a delay in implementation of the current DOL fiduciary rule. The Administration should use this time to address flaws in the rule and pursue a harmonized standard across the retail and retirement marketplace, coordinating with the Securities and Exchange Commission to ensure investors' best interests are paramount."
Financial firms have been scrambling for months to implement costly new procedures and computer systems, governing what sorts of advice their advisors and brokers would be allowed to provide to various types of clients.
About $1.9 trillion in investors' assets would be affected by 2020, according to a study by global management consultant A.T. Kearney. It had forecast asset shifts of about $23 billion in revenue, creating big winners and losers.
Mutual fund complexes alone would see investors yank out $1 trillion in assets, Kearney said, costing them $14 billion in revenue.
Some financial firms may keep in place changes they have already crafted, even if Trump kills the fiduciary rule itself.