One of the most hotly debated questions in the advisory space now that Donald Trump has become president-elect is whether his administration will seek to overturn, repeal or gut certain portions of the Department of Labor’s fiduciary rule.
Advisors, political watchers, lawyers as well as fiduciary advocates are on both sides of the fence, with some saying he’ll appoint a new Labor Secretary that will be willing to scrap the existing rule and issue a new “interim rule,” while still others believe Trump will not make DOL’s rule a priority action item during his first 100 days in office.
The first compliance date with DOL’s rule hits on April 10.
Andy Friedman of The Washington Update thinks that if overturning the DOL rule “is a high priority of the new administration, it will happen one way or another.”
However, he adds, “if taking action is far down the list of priorities, it is possible the new rule could take effect before repeal procedures are finalized.”
Analysts at Washington Analysis say that they believe President-elect Trump will appoint a new Labor Secretary to replace Thomas Perez “early next year who will choose to halt implementation” of the DOL’s rule.
Trump’s new Secretary of Labor will either “seek to simply delay implementation to revisit and review the impact of the fiduciary rule, or will opt to take a more aggressive approach by starting an entirely new rulemaking,” the analysts predict.
Because Labor is an executive branch agency, with the Secretary of Labor being a cabinet-level official who serves at the pleasure of the president, analysts at Washington Analysis say, “We view the next Secretary of Labor as having considerable flexibility in choosing a path forward that does not involve implementing the current fiduciary rule.”
While Trump hasn’t mentioned DOL’s rule, “he has clearly emphasized the need to roll back regulations and halt the creation of new rules,” the analysts continue, and Trump campaign advisor Anthony Scaramucci “promised that Trump would repeal the rule, effectively arguing that it is a fatally flawed rule that inappropriately discriminates against financial advisors.”
Attorney Brian Hamburger of the regulatory consulting firm MarketCounsel, who has been an opponent of DOL’s fiduciary rule, told his clients in a recent letter that a Trump presidency coupled with a Republican Congress “will have an enormous impact on the momentum of the expansion of a fiduciary duty on those who give financial advice.” He expects DOL’s fiduciary rule, he told clients, “to be repealed” prior to April.
Fiduciary expert Don Trone, founder and CEO of 3Ethos, believes that the “new DOL appointees will learn from the mistakes of their predecessors and commit to sitting down with industry fiduciary experts and the SEC to work through a principles-based uniform fiduciary standard,” and DOL’s existing rule “will not survive.”
Even while DOL’s rule “remains on the books, it’s going to require funding and enforcement support. If funding and support is withheld, the rules will begin to slip into the background,” Trone adds.
If the new administration wants to repeal the rule, there are three avenues to doing so.
First is an act of Congress. While there is support in the new Republican-led Congress to overturn the rule, Friedman says, “sixty votes will be needed in the Senate, but some Democrats also have expressed concern about its purview.”
A regulation also can be overturned without congressional action by following the same procedures used to promulgate the regulation in the first place, Friedman continues.
“These procedures require the issuance of a proposal to repeal the rule, followed by a months-long period during which comments are collected and testimony given. That process would not be completed before the April effective date.”
However, “in extreme cases, a new administration may dispense with these lengthy procedural requirements by issuing an ‘interim final rule’ overturning the regulation — or at least postponing its effective date,” Freidman explains.
Given the rule’s April start date, “use of such a procedure could be warranted here,” however, such a move “is subject to challenge that the agency did not have ‘good cause’ to circumvent the typical notice and comment requirements.”
Last, an “unlikely” route, Friedman said, would be for the Trump administration to “simply concede the court actions instituted against the rule, permitting a court to overturn it,” but it’s uncertain whether a court would do so.
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