It’s fair to say that 2017 will be a year like none other. On Jan. 20, the country will swear in as president Donald Trump, who has promised a “new direction” for the country.
Kellyanne Conway, Trump’s campaign manager who’ll also serve in the new administration, told advisors during December’s MarketCounsel Summit in Miami that the American voter has “made good on its 30-year self-avowed description” of an ideal president being someone “outside the system who goes to Washington owing no one anything.”
In the campaign and since his victory in November, Trump consistently said his administration would institute fewer regulations and would cut taxes — personal and corporate — to help stimulate economic growth.
During this presidential election cycle, Conway stated that more than 70% of Americans “said all along that they wanted to take the country in a new direction. They wanted change.”
So what changes — revolutionary or otherwise — are in store for advisors and their clients under a Trump administration?
The Future of the DOL Fiduciary Rule
As for the regulators most of interest to advisors, on Dec. 8 President-elect Trump nominated as Labor secretary Andrew Puzder, a fast-food executive who’s come out against the Department of Labor’s overtime rule as well as increases in the minimum wage. Puzder has yet to weigh in on whether he’d delay or try to curtail Labor’s fiduciary rule.
“Puzder’s an unknown quantity as far as the fiduciary rule is concerned, though his general antagonism toward regulation is of concern,” said Barbara Roper, director of investor protection for the Consumer Federation of America, and a fiduciary rule supporter. “We can only hope that he’ll live up to the president-elect’s pledge to make Washington work for average Americans. After all, this [fiduciary] rule directly pits the interests of workers and retirees against the interests of powerful financial firms fighting to preserve their ability to profit at their customers’ expense. So if that pledge was more than just empty campaign rhetoric, the rule should be safe.”
Duane Thompson, senior policy analyst at fi360, said that it’s appropriate for the choice of Puzder to get a lot of attention. However, whoever becomes the head of DOL’s Employee Benefits Security Administration (EBSA) “may have an even greater influence on pension regulations and any modifications” to DOL’s rule.
The current head of EBSA, Phyllis Borzi, is the original architect of the fiduciary rule, but as of mid-December the Trump transition team hadn’t announced that level of appointments.
Industry officials including Skip Schweiss, head of advisory advocacy at TD Ameritrade Institutional, agreed that Labor’s fiduciary rule could be delayed under a President Trump, but not all-out derailed. Even a delay, Schweiss said, would require a rulemaking by the department, which would only come after a new Labor secretary is formally nominated and then confirmed by the Senate. “There are 80 days between the Jan. 20 [presidential] inauguration date and the [DOL rule’s] April 10 compliance date. Not a lot. We likely aren’t going to know about some sort of delay, at a minimum, [before] February or March.”
Trump chose former SEC Commissioner Paul Atkins, a conservative Republican and Dodd-Frank Act opponent, to counsel him on financial appointments, along with Anthony Scaramucci, founder and a co-managing partner of investment firm SkyBridge Capital and a co-anchor of the Fox Business show “Wall Street Week.”
Scaramucci, a staunch opponent of Labor’s fiduciary rule, has declared that the rule should be repealed.
Sen. Ron Johnson, R-Wis., head of the Senate Homeland Security and Governmental Affairs Committee, told Labor Secretary Thomas Perez in late November to halt implementing Labor’s “burdensome” fiduciary rule because it will likely be “undone” by the incoming Trump administration.
But industry officials doubt that outright repeal of the rule is likely, and are counseling advisors and broker-dealers to continue to get ready for the rule’s April compliance date.
Borzi refused to concede that the rule she spearheaded over six years was going to suffer defeat under a new administration. In a December speech in Washington, Borzi first refused to speculate on what the Trump administration might do about the fiduciary rule. She did say, however, that “the customer-first principle that’s embodied in this rule has already taken hold in the marketplace, and companies are not going back; they are going to continue to move in that direction. The speed at which they move may vary depending on what happens, but I’m not going to conclude that this rule is going away.”
CFA’s Roper said that the “biggest existential threat” to the DOL rule is from legislation that might be passed by the new, 115th Congress. Stopping any such legislation will require, she said, a “determined effort from Senate Democrats. Fortunately, we have some strong champions in the Senate.”
The Future of the SEC
As to the Securities and Exchange Commission, former SEC Commissioner Luis Aguilar said at the MarketCounsel meeting that current SEC Commissioner Michael Piwowar, a Republican, will likely be the acting chair of the Commission and could potentially be the new permanent chair of the agency, replacing Mary Jo White.
However, Aguilar, a staunch advocate of the agency adopting a uniform fiduciary standard for brokers and advisors during his time at the agency, said that if selected, Piwowar would likely not support such a rule.
With the previously announced departure of Chairwoman White in January, the commission would be left with only two commissioners — Piwowar and Kara Stein, a Democratic appointee.
The women nominated by President Obama for the two vacant SEC seats — Hester Peirce and Lisa Fairfax — could be confirmed by a voice vote by the full Senate during the current 114th Congress’ lame-duck session, Aguilar noted in early December, but “no one expects that to happen.” Instead, the former commissioner said Trump will likely “come up with his own people” for those vacant positions.
Potential picks to become the new SEC chair include Piwowar; Atkins; former GOP SEC Commissioners Dan Gallagher and Troy Paredes; and, as reported by Reuters, former U.S. Attorney Debra Wong Yang. Yang is a partner at the law firm Gibson Dunn & Crutcher in Los Angeles and is a longtime friend of New Jersey Governor Chris Christie, a Republican and a supporter of Trump.
President Trump would not likely nominate an “activist chair,” Thompson argued, but someone “along the lines of Chris Cox.” Cox served as SEC chair in the latter part of the Bush administration, when he “slowed down the regulatory pace,” said Thompson. Any new SEC chair, he suggested, may “place more attention on basic enforcement; less on policy initiatives.”
The boost in the SEC’s budget to Congress for more examiners to inspect investment advisors that was appropriated each year for White’s SEC “will end,” Thompson added. “Advisors will not see the same pace of regulations that you’ve seen since the financial crisis.”
On the taxes front, Trump has vowed to eliminate the estate tax — or the “death tax” as he prefers to call it — along with the alternative minimum tax, and would shake up both the income tax brackets and the current income tax deductions (see sidebar, right).
The Future of the Dodd-Frank Act
Rep. Jeb Hensarling, R-Texas, who was elected Dec. 2 to a third term as chairman of the House Financial Services Committee for the new Congress, plans to ensure that his Financial CHOICE Act soon moves to the House floor for a vote. Hensarling’s bill would replace 2010’s Dodd-Frank Act and kill DOL’s fiduciary rule. Trump has voiced support for the legislation.
“In my conversations with Mr. Trump, he and I share the view that Dodd-Frank has not led to economic growth in America, and we agree on” the CHOICE Act, Hensarling said in late September.
Fi360’s Thompson said that Trump’s cabinet picks so far (see Trump Pick for DOL Chief Said to Be Andrew Puzder, and Mnuchin Said to Be Trump’s Treasury Pick) have been consistent with his campaign promises that once in office “he will ‘cut regulations massively.’” That, said Thompson, will translate into many rollbacks of existing regs, “not new initiatives coming out of the SEC or DOL.”
As a self-regulatory organization, Thompson thinks FINRA won’t be as affected by the Trump administration as government agencies like the SEC and the Labor Department. While FINRA has a new head in Robert Cook, “my guess is it will be reacting more to market and enforcement issues in any regulatory response,” Thompson added.
In sum, financial services regulators under a Trump administration will not be “pushing the envelope. Far from it,” said Thompson. He does think it possible that the SEC may advance its fiduciary rule should DOL’s fiduciary rule be suspended, “allowing the commission to play a more active role.”
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