Just as broker-dealers and advisors were ramping up their compliance with the Department of Labor’s fiduciary rule, the surprising win by Donald Trump could throw the rule’s viability (and applicability) into question.
Advisors, lawyers and industry officials wasted little time after the election results in early November in surmising what measures a Trump administration — as well as a GOP-controlled Congress — could take to derail DOL’s rule or delay its two compliance dates (April 2017 and January 2018). Anticipated moves include the rule being halted or repealed in early 2017, to some parts of the rule being “gutted,” to others predicting little to no changes.
Trump’s win coupled with the Republican takeover of both chambers of Congress comes on the heels of DOL releasing in late October its first batch of frequently-asked-questions guidance about the rule.
While at least one of the legal challenges to torpedo the DOL’s fiduciary rule — or cause a delay in its April compliance date — failed as of press time in mid-November, advisors were still wading through the FAQ guidance to get a better handle on how to comply with the rule.
Fiduciary expert Don Trone, founder and CEO of 3Ethos, a vocal opponent of DOL’s rule, said that while it takes more time to take a regulation off the books than it does putting one on, the DOL rule is “going to require funding and enforcement support. If funding and support is withheld, the rules will begin to slip into the background.”
Michael Kitces, director of wealth management and partner of the Pinnacle Advisory Group, added that because DOL’s rule was so “unpopular” with Republican lawmakers, he can’t imagine that it will remain totally intact. Under a President Trump, “we’re going to see the rule get gutted. We’re going to see some of the tough line items get killed.”
The No. 1 item will be the industry lobbying Congress “to kill that class-action lawsuit provision” and allow financial institutions to “bind people in arbitration, which is what the industry has always done,” Kitces said.
Still others, like attorney Brian Hamburger of the regulatory consulting firm MarketCounsel, go even further, predicting that a new Labor chief appointed by Trump will be eager to halt the rule’s implementation or issue an “interim final rule” overturning the existing one. Hamburger opined that the current rule will be “repealed” before its April effective date.
Meanwhile, Back in Court …
In late October, Judge Randolph Moss denied the National Association for Fixed Annuities’ request for a preliminary injunction to stay DOL’s rule in his U.S. District Court for the District of Columbia courtroom. Moss’ 92-page ruling instead favored Labor on the merits in upholding its conflict of interest rule.
Opponents of DOL’s rule are still holding out hope that the cases brought in Kansas by insurer Market Synergy, as well as the one brought by nine plaintiffs in Texas, stand a chance of halting the rule’s progress. As of press time Judge Daniel Crabtree in Kansas had not yet rendered a decision in the Market Synergy case, and oral arguments were to be heard Nov. 17 in the Texas court of District Judge Barbara M.G. Lynn.
[Editor's Note: After press time, Lynn heard two of the eight amicus briefs filed in the court, and one observer reported the judge "gave DOL a very hard time."]
NAFA acted quickly in saying that it would appeal Moss’ decision denying the annuity group’s request to block DOL’s fiduciary rule. The only catch: NAFA must first get Moss’ permission.
Pamela Heinrich, NAFA’s general counsel, said in a Nov. 7 interview that NAFA’s attorneys will likely ask Moss for a preliminary injunction pending the appeal. “We can’t go right upstairs” to the appeals court with the motion, Heinrich said. “We may ask for a status conference so that we could get this before [Moss] with the other party [DOL] and move this along. We’re feeling the pull of time.”