In a 75-minute speech and Q&A with attendees of IMCA’s Financial Consultants conference on Tuesday, Andy Friedman of The Washington Update offered both somber and lighthearted views on the presidential and congressional elections, the likelihood of increased federal taxes and the biggest issues facing the new Congress and president.
In his Midtown Manhattan speech, Friedman also addressed the elephant in the room for many advisors and their partners — the Department of Labor’s fiduciary rule under the Employee Retirement Income Security Act — and suggested ways for advisors to provide added value to clients.
Friedman expects the rule, which reached the Office of Management and Budget last week (see DOL Fiduciary Rule Lands at OMB for Review), to be released “within one-and-a-half to two months,” and while he doesn’t expect a “major” rewrite, there may be some “changes around the edge” of the version of the rule released by DOL for public comment in April 2015.
Yes, there may be some legislation passed by one or more houses of Congress to stop the DOL rule, but to avoid President Barack Obama’s veto, the only congressional option would be to add a defunding clause to the Department’s funding legislation in September. Under the current timeline for the rule — and assuming OMB provides an expedited review — that would be just before the DOL would begin implementation of the rule.
However, Friedman said what is “most likely” would be a “slew of court cases” challenging DOL’s authority to institute a new definition for fiduciary, especially on 401(k)’s and IRAs. Those challenging the rule in court would be “looking for an injunction” against the rule, he said.
“If the industry gets one,” he said of an injunction, “the rule is dead.” That’s partly because if the rule isn’t implemented by the time the next president takes office then it likely won’t be, since new presidents routinely review any rule changes when they take power, regardless of their party affiliation and that of their predecessor.
Yes, “courts don’t like to give injunctions,” Friedman admitted, but the rule’s opponents “could get one.”