Donald Trump’s stunning victory over Hillary Clinton to become the next president of the United States—as well as a GOP majority in both chambers of Congress—could spell the end of the Department of Labor’s fiduciary rule, as well as what amounts to repeal of the Dodd-Frank financial reform law via the Financial CHOICE Act.
Ron Rhoades, an attorney who leads the financial planning program at Western Kentucky University, opined in a Wednesday morning blog post that he anticipates the DOL’s fiduciary rule, along with the rule’s best interest contract exemption (BICE), to be “halted” in early 2017. He also sees the Securities and Exchange Commission’s authority to adopt its own rule under Section 913 of the Dodd-Frank Act being “repealed.”
Even if the SEC’s fiduciary authority is not repealed, Rhoades said, a newly constituted SEC is “highly unlikely” to move ahead with its own fiduciary rule.
Rhoades opined that while the “application” of the fiduciary principle will remain intact, “the battlegrounds have merely shifted – at least for the next four years” to the marketplace and to professional organizations implementing a fiduciary standard.
Knut Rostad, president of the Institute for the Fiduciary Standard, was more optimistic, stating Wednesday morning that Trump’s victory does not necessarily doom DOL’s fiduciary rule as Wall Street opposition to the rule “has weakened. The thundering herd has embraced it.”
Rep. Jeb Hensarling, R-Texas, chairman of the House Financial Services Committee, said in late September that his Financial CHOICE Act that seeks to replace Dodd-Frank and kill DOL’s fiduciary rule will likely move to the House floor for a vote after the election, and that Trump supports the legislation.
“In my conversations with Mr. Trump, he and I share the view that Dodd-Frank has not led to economic growth in America, and we agree on” the CHOICE Act, Hensarling said in late September. Hensarling was overwhelmingly reelected to his 5th district House seat on Tuesday.
The Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs Act (CHOICE) would block the Labor Department from implementing its new fiduciary rule by incorporating into the bill Rep. Ann Wagner’s Retail Investor Protection Act, H.R. 1090, which passed the House last year and requires the SEC to move first on a fiduciary rulemaking before DOL can implement its fiduciary rule. Wagner, R-Missouri, also handily retained her House seat in Tuesday's voting.
Barbara Roper, director of investor protection for the Consumer Federation of America, said Wednesday morning that the "biggest existential threat" to the DOL rule is from legislation. "It will require a determined effort from Senate Democrats to prevent that. Fortunately we have some strong champions in the Senate."
Duane Thompson, senior policy analyst at fi360, believes that "it would be extremely difficult to roll back the rule in its entirety." Rather, he said, "it is certainly possible that a Trump administration could look at ways to administratively broaden the safe harbors for conflicted advice or avoiding fiduciary status," adding that Trump, himself, has not voiced a "specific position" on the DOL rule, "although one of his campaign aides said it should be overturned."
The industry may also be reluctant to lobby to overturn the rule, Thompson says, since broker-dealers and the wirehouses "would have to go back to square one and reconfigure their compliance systems and product lineups this far into the implementation process." The first compliance date with the rule is in April.
Michael Kitces, director of wealth management and partner of the Pinnacle Advisory Group, adds that because DOL's rule was so "unpopular" with Republican lawmakers, he can't imagine that it will remain totally intact. Under a Trump administration, "we're going to see the rule get gutted. We're going to see some of the tough line items get killed." The No. 1 item will be the industry lobbying Congress "to kill that class-action lawsuit provision" and allow financial institutions to "bind people in arbitration, which is what the industry has always done."
There's also the legislative rider that's attached to the DOL appropriations bill for fiscal 2017, which would prohibit the use of agency funds to implement the rule, Thompson continues, "but last year a similar effort failed, and likely will fail again this year when it is considered later this month or in early December."
Meanwhile, SEC Chairwoman Mary Jo White, a fiduciary rule’s biggest champion, will be leaving her post and two commissioner seats at the agency remain to be filled.
Skip Schweiss, head of advisory advocacy at TD Ameritrade Institutional, agreed that while SEC action on a fiduciary rule is unlikely, he also doesn’t see rapid action on an SEC proposal to require that advisors receive third-party exams. However, a proposed rule on mandatory business succession plans “may go forward,” Schweiss says, as may the Treasury Department’s Financial Crimes Unit proposal to include registered investment advisors in the definition of financial institution for purposes of mandatory anti-money laundering policies.
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