This week, the U.S. Chamber of Commerce added to the welter of speculation over the Department of Labor’s fiduciary rule’s fate.
Chamber CEO Thomas Donohue said the organization is urging the incoming Trump administration’s transition team to undo the regulation. To date, the Trump administration hasn’t communicated its position on the rule.
Should the new administration heed the Chamber’s advice, the most efficient route for lawmakers and the new Labor Department may be delaying the April 10 implementation date, say experts.
That strategy would be within the Trump administration’s statutory ability, said Cary Coglianese, director of the University of Pennsylvania Law School’s Program on Regulation.
“If you are just amending the compliance date, that is trivial from the standpoint of the law and what an agency has to do to withstand judicial scrutiny,” said Coglianese.
Trump has little time to signal intent
For stakeholders holding out hope the Trump administration will intervene, time is running out, says Jean-David Larson, director of regulatory and strategic initiatives at Russell Investments.
Larson fears some smaller stakeholders, like regional broker-dealers and banks, have been conditioned to believe that the courts, and now the Trump administration, will inevitably upend the fiduciary rule.
“A significant portion of the industry is continuing to rely on the rule being stopped,” said Larson. “But if stopping the rule is a priority for the administration then they are going to have to signal that soon.”
Larger firms, which Larson says have a clear advantage in complying with the rule, are far into the compliance process.
In some cases, new share classes on retirement assets have been issued, prospectuses have been rewritten, payment grids have been redesigned and commissions on products that will be sold under the rule’s Best Interest Contract Exemption have been leveled.
Some firms have begun to release those changes along with education initiatives for advisors. Others have kept compliance efforts close to the vest for competitive purposes, said Larson.
But all will have to start releasing their intended course of action, and soon, in order to avoid the litigation and competition risks that will come from not being prepared for implementation.
“I think we’ll see the full release of plans by January,” said Larson. “Even if the administration did signal something by then, it would need to be something specific and definitive as to their plans.”
Larson is skeptical that Congress will be able to act to defund the rule through the appropriations process before April 10, given the extent of the political capital it will have to spend on other initiatives Trump and Congress have pledged to take up.
Chances are better the second implementation date, slated for Jan. 1, 2018, could be affected by the Trump administration, he said. That is when investment firms and advisors will have to comply with the BIC Exemption.
The contract’s requirements could be softened, and language restricting class-action waivers could potentially be stripped, speculated Larson.
But he cautioned that will be of little use in the near term. “I think that by April, plaintiffs’ attorneys will be analyzing compensation agreements and looking for the low-hanging fruit.”
Industry warming to rule
Melissa Dimitri, a senior manager in Grant Thornton’s Advisory Services, which provides strategic consulting to financial services and insurance companies, says her team is not swayed by the back-and-forth speculation over the rule’s fate.
“We try to advise our clients on the best approaches to staying competitive,” said Dimitri. “When you keep a focus on doing the right thing for your clients and your people, a lot of this talk becomes background noise.”
More often, she is seeing clients applying a “customer centricity” approach to strategy, an effort the fiduciary rule has accelerated.
“We’ve heard clients say they want to adopt the spirit of the regulation because it attempts to put clients interests first.”
Within the insurance sector, an area of focus in Dimitri’s practice, companies are embracing the rule in different ways, she says.
“There have been a lot of resources already invested to pivot to the rule, specifically with transparency issues and variable compensation. I’m not sure a change in direction from the Trump administration would lead them to go back. Regardless of what happens with the regulation, I can’t see how you un-ring that bell,” said Dimitri.
She says it is too soon to say which insurance companies would undo the initiatives in place to comply with the rule if it is rolled back.
“I think a lot of the strategies they are deploying now will stand up and stay in place regardless of what happens,” she said. “Companies don’t want to be thrown back and forth by the crisis du jour — they want to stay focused on doing the right things for the right reasons. That’s what the smart organizations are going to do.”
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