The Department of Labor’s conflict-of-interest rule is headed for a near-certain demise.
The much-maligned rule, the first phase of which is set to take effect in April of 2017, will likely be killed come January in the wake of President-elect Donald Trump’s resounding victory over Hillary Clinton on Tuesday. The reason: The election of a Republican-dominated Congress intent — as is Trump — on ripping up Obama-era regulations they view as stifling economic growth. There is also fierce opposition to the DOL rule by people within the president-elect’s camp.
The rumblings have been building for months. Most recently, a Trump backer on Wall Street tapped to serve as a campaign advisor — Skybridge Capital Managing Director Anthony Scaramucci — indicated during a Securities Enforcement Forum in Washington in late October that a Trump Administration will “repeal” the fiduciary rule, noting it’s one of the most ill-advised federal regulations crafted in the last half-century.
Last April, during a speech about the economy in Detroit, Trump also proposed a “temporary moratorium” on new financial regulations with a view to providing economic relief for small businesses, the pause to remain in effect until the economy shows stronger signs of recovery. In the same speech, Trump called for repealing the estate tax. Under current law, the “death tax” hits estates valued at 5.45 million for individuals and $10.9 million for couples with a 40 percent levy.
Though Trump himself has not expressed an opinion on the fiduciary rule, future GOP allies in Congress say the 1,000-plus pages in DOL regulations are headed for the dustbin. Among them: backers of Congressional resolutions passed earlier this year to rescind the rule.
The supporters are not only Republicans. U.S. Senate Resolutions 33 cleared the chamber in May, by a 56 to 41 margin, with three Democrats — Sens. Joe Donnelly (Indiana), Heidi Heitkamp (North Dakota) and Jon Tester (Montana) — joining Republicans in support of blocking the DOL’s implementation of the rule. The U.S. House of Representatives passed a similar resolution, though along party lines in April, soon after the rule was finalized.
Under the Congressional Review Act, Congress had 60 days to review finalized regulations. President Obama subsequently vetoed the Congressional resolutions in June, noting in a written statement that “outdated regulations in place before this rulemaking did not ensure that financial advisers act in their clients’ best interests” — the principal aim of the rule — “when giving retirement investment advice.”
The much-maligned DOL fiduciary rule will likely be killed come January in the wake of the President-elect Donald Trump’s resounding election victory. (Photo: AP Images)
In the unlikely event a Trump Administration doesn’t gut the DOL rule come January, it will also have to survive challenges in the courts. On November 7, The National Association for Fixed Annuities (NAFA) said it will appeal a federal district judge’s decision upholding the rule. A U.S. Court of Appeals for the District of Columbia will hear the appeal.
NAFA filed its lawsuit in June seeking a preliminary injunction to stay the rule’s implementation. Judge Randall Moss, who presided over the case, denied the preliminary injunction and ruled in favor of the Labor Department on its merits in upholding the rule.
Two other court cases pending include: (1) a suit filed by the Market Synergy Group in Kansas; and (2) a 9-party complaint filed in a U.S. District Court for the Northern Texas.
The latter may be the big case to watch, for it consolidates three lawsuits: one is the complaint filed by 9 trade organizations and Texas business associations led by the U.S. Chamber of Commerce; a second by American Council of Life Insurers (ACLI) and the National Association of Insurance and Financial Advisors (NAIFA); and a four-party suit of insurers filing under the banner of the Indexed Annuity Leadership Council (IALC).
The three cases have a number of common grievances. Chief among their allegations: that the DOL overstepped its authority in crafting the conflict of interest rule, starting with its expanded definition of fiduciary. The DOL’s revised interpretation, the plaintiffs to the Texas lawsuit allege, were never interpreted to apply to one-time product sales transacted by brokers who provide only “incidental investment advice,” and who don’t have a client relationship built on “heightened trust and confidence.”
Assuming the DOL rule survives appeals in the three cases, it likely will be bound for the U.S. Supreme Court. And there, the DOL’s opponents trust, the rule will meet its end. That’s because Trump — and not Hillary Clinton — will be nominating individuals to fill vacancies on the high court. And, as Trump as repeatedly assured voters during stops on the campaign trail and in meetings with lawmakers on Capitol Hill, he fully intends to nominate conservative justices strongly opposed to the Obama Administration’s progressive agenda — including federal regulatory initiatives.
That process will start with a nomination to replace Judge Merrik Garland, whom the President picked earlier this year to fill the seat left open by the death of Justice Antonin Scalia. The Supreme Court could take on a still more conservative cast if, as many now expect, two of the court’s liberals, Justices Ruth Bader Ginsburg and Stephen G. Breyer, ages 83 and 78, respectively, retire during Trump’s presidency.
The bottom line: The fiduciary rule is headed for an all-but-certain death. One way or other, the DOL’s widely criticized conflict-of-interest regulations will not survive a united wall of opposition from Congress, the courts or the Republican administration of President Donald J. Trump.
We’re on Facebook, are you?