Obama vs. Romney on Regulation: DOL Fiduciary DOA? Yes or No to SRO? Borzi Gets Boot?

While the regulatory and legislative landscapes remain sketchy until after the Nov. 6 election, industry officials say there are some fairly sure bets advisors can count on.

For starters, the Securities and Exchange Commission’s (SEC) fiduciary rule will maintain momentum regardless of a President Obama or Gov. Mitt Romney win, but the Department of Labor’s (DOL) fiduciary rule won’t see the light of day under a Romney administration.

Other certainties are that legislation to create a self-regulatory organization (SRO) to examine advisors will most likely be reintroduced in the next Congress regardless of an Obama or Romney victory, and sections of the Dodd-Frank Act will face challenges moving forward under both a Republican and Democratic White House and Congress.

“In the policy world, the DOL’s fiduciary rule is critically dependent on the election,” says Brian Graff, CEO of the American Society of Pension Professionals and Actuaries (ASPPA).

Unlike tax reform, which will move ahead next year regardless of which candidate is elected, the DOL’s controversial rule amending the definition of fiduciary under the Employee Retirement Income Security Act (ERISA) will be “put into hibernation” if Republican presidential candidate Romney wins, Graff (above) says. Phyllis Borzi, the Obama administration’s Assistant Secretary for DOL’s Employee Benefits Security Administration (EBSA), and chief architect of the fiduciary rule, would be replaced.

Brad Campbell, former head of EBSA, says that if there is a Romney administration, “almost all of the political appointees in the entire executive branch will be replaced,” including Borzi.

While Romney has not announced a specific regulatory agenda for EBSA, “the bipartisan opposition to the proposal makes it very unlikely that proceeding with the proposal would be on a Romney administration’s agenda,” says Campbell, who is now an attorney with the Financial Services ERISA Team at Drinker Biddle & Reath in Washington.

However, Campbell says there is a full plate of ERISA issues for a Romney administration to handle just in fully implementing the two new fee disclosure regulations—408(b)(2) and 404a5. Most significantly, a Romney administration would have to address the tax treatment of retirement plans during the debate on comprehensive tax reform.

Both Campbell and Graff agree that one of the biggest issues for the next Congress and administration to tackle next year is the tax treatment of retirement plans under broad tax reform. Graff says the ASPPA has launched a “major” social media campaign called Save My 401(k). “Last time Congress did tax reform, there was a 70% cut in the 401(k) contribution limit. We can’t let that happen again.”

Dan Barry (left), managing director of Government Relations & Public Policy for the Financial Planning Association (FPA), notes that while DOL’s fiduciary rule will fall by the wayside under a Romney administration, a Romney replacement for Borzi could decide to “take a fresh look” at the fiduciary reproposal and offer “a narrower approach.”

If Romney proves victorious, however, Borzi may attempt to get a redraft of the reproposed fiduciary rule out and approved by the Office of Management and Budget (OMB) before he takes office, Barry adds.