The biggest issue for advisors in the just-concluded year was the Department of Labor’s long-aborning final rule under which any advisor providing advice in retirement plans is deemed a fiduciary under ERISA. However, the election of Republican Donald Trump as president, and the GOP’s newfound control of both houses in the next Congress, have put the rule in a kind of political limbo. (See this month’s cover story beginning on page 20 for a broader look at how changes in Washington will affect advisors).
While companies that partner with advisors, and advisors themselves, are busy taking steps to comply with the DOL rule, in mid-December the U.S. Chamber of Commerce announced it is “already working” with transition officials to “undo” the DOL fiduciary rule.
In a Dec. 12 blog post, the U.S. Chamber’s President and CEO Thomas Donohue wrote that the Chamber is “urging immediate action to undo” Labor’s fiduciary rule because “if enacted, it would choke economic growth, increase frivolous litigation against financial advisors and make saving for retirement more difficult for hardworking Americans.”
President-elect Trump, Donohue wrote, “will have the power to quickly undo some of President Obama’s executive orders by issuing executive orders of his own,” but other regulatory reforms will require going through “the lengthier and more complicated rulemaking process.”
The DOL’s rule would be one of those reforms.
The Chamber is among the groups that has filed a lawsuit against the DOL’s rule in U.S. District Court for the Northern District of Texas, along with other plaintiffs including SIFMA and the Financial Services Institute.
Judge Barbara M.G. Lynn heard oral arguments in the case on Nov. 17. Her decision in the case was anticipated by the end of 2016.
The U.S. Chamber’s Donohue wrote in his blog post that “congressional leaders should prioritize legislation that would reform the way rules are made and enforced,” noting that the Chamber led a coalition of 380 business associations and local chambers of commerce to urge House leaders to move quickly on the Regulatory Accountability Act in the next Congress. Donohue said that bill would make the regulatory process more transparent, agencies more accountable and “regulations better targeted to solve existing problems without creating new ones.”
SIFMA Lays Out 2017 Priorities
While SIFMA has challenged one fiduciary rule in court, the securities industry group said that it favors another such standard from the Securities and Exchange Commission. In a Dec. 7 briefing with reporters, SIFMA President and CEO Ken Bentsen outlined the issues on which the organization will focus in the new year; a uniform fiduciary standard, he said, continues to be at the top of SIFMA’s advocacy priorities.
While SIFMA feels that the DOL fiduciary rule would result in less investor choice and greater cost, the reasons it sued to vacate the rule, Bentsen said SIFMA has long supported an action by the SEC to establish a uniform standard of care for broker-dealers and advisors when providing personalized investment advice about securities to retail customers.
“I think our position with respect to the Department of Labor is extremely well known; obviously we’re involved in litigation with that,” Bentsen said. “We continue to believe that the SEC is the appropriate agency here.”
Part of President-elect Trump’s agenda has been tax reform, and Bentsen suggested tax reform was a goal SIFMA’s members could get behind. Reform, he said, “is something that we’ve been focused on for many years,” listing “international, corporate and individual” taxes as examples of revenue-generating policies that should be addressed.
SIFMA, he said, is committed to promoting policies that it believes will grow the economy while yielding a “fair and competitive result.” Bentsen suggested that the tax plan proposed by Speaker of the House Paul Ryan, R-Wis., and Ways and Means Committee Chairman Kevin Brady, R-Texas, “signals a potential congressional path forward on tax reform.”
Another priority for SIFMA in the new year dovetails well with another of Trump’s avowed policies: increased infrastructure investment. “Infrastructure finance is something that this industry is focused on a great deal,” Bentsen said. While capital investment “stands at the ready,” SIFMA says that many borrowers are struggling to identify reliable funding sources to support debt service, return on capital and maintenance costs.
SIFMA is working with a network of experts, he said, to explore how it can make existing investment dollars go further for infrastructure projects, including the use of public-private partnerships; preserving tax-exempt financing for traditional municipal-bond financed initiatives; and using innovative approaches like a “design-build” procurement process.
Meanwhile, Back at the SEC
At the SEC’s Investor Advisory Committee meeting on Dec. 8 in Washington, the IAC discussed the DOL fiduciary rule, cybersecurity and elder financial fraud. However, the elephant in the SEC meeting room was whether the IAC will continue to exist at all in 2017, since it was created by the Dodd-Frank Act, which Congressional Republicans have vowed to overturn.
David Blass, general counsel for the Investment Company Institute, told members of the committee that DOL’s fiduciary rule “is going to be harmful to investors,” and that evidence of such harm is already being shown in “orphaned” 401(k) accounts. The rule “should be revised and harmonized” with an SEC rule, he said.
IAC Chairman Kurt Schacht, chairman and managing director of the CFA Institute, wondered during the meeting if the incoming Trump administration, which he noted has vowed to “relook” at the Dodd-Frank Act, would do away with the committee in the new year.
The IAC “has been an excellent experiment,” Schacht said. “Save the IAC.” The Dodd-Frank Act authorizes the IAC to submit findings and recommendations for review and consideration by the commission.
SEC Chairwoman Mary Jo White noted at the meeting that “it is important that the commission and the committee continue to work together to address the issues facing investors” into 2017.
There has been speculation that SEC Commissioner Michael Piwowar, a Republican, could be the interim SEC chairman after White leaves as promised in January, and perhaps even become the new permanent chair of the commission. However, Piwowar agreed at the Dec. 8 meeting that the IAC has been “a tremendous asset to the commission,” adding “I look forward to working with you in 2017.”