President Trump’s executive order directing the Labor Department to undertake a new economic and legal analysis of the fiduciary rule was immediately embraced by lawmakers and stakeholders opposed to the regulation.
In a statement issued after she attended President Trump’s signing of the order, Rep. Ann Wagner, R-MO, a sponsor of bills that would have blocked the Labor Department from implementing the rule, said she applauds the President’s order to “delay” the rule.
But some proponents of a fiduciary standard say language in the order offers more questions than answers as to the rule’s ultimate fate.
The final executive order stripped language from an earlier draft specifically calling for a six-month delay of the rule.
In lieu of an explicit mandate to delay the rule’s April 10 implementation date, the order instructs Labor to consider if that date is “likely to harm investors” by reducing access to financial advice and retirement investment products, and whether the scheduled implementation date has resulted in industry disruptions that will adversely impact retirement investors.
The order also instructs Labor to assess if the rule will create an increase in litigation, and an increase in the price of retirement investment services.
How long will the rule’s new analysis take?
Rob Foregger, co-founder of NextCapital, which provides automated investment platforms for 401(k) plans and retirement advisors in the retail segment, does not think a thorough economic and legal analysis can be completed quickly.
“Given how far-reaching the rule is, and that comment periods during the rulemaking process took as long as they did, I think they will have a hard time completing a full and accurate analysis before April 10,” said Foregger, who advocated for the regulation in its existing form.
Further complicating the question of timing is the fact that the Labor Secretary and Asst. Sec for the Employee Benefits Security Administration positions are still vacant. The confirmation hearing for Andrew Puzder, President Trump’s Labor nominee, has been delayed a fourth time and has yet to be rescheduled.
“I would think to complete a new analysis of the rule in the right way you would have to have the agency head in place,” said Foregger. “To initiate the process without a Labor Secretary would be a bad idea irrespective of who it is—it would be putting the cart before the horse.”
Trump’s priority: help people save for retirement
Facilitating the ability to save for retirement is a priority of the Trump administration, according to the President’s executive order.
So is empowering Americans “to make their own financial decisions,” the order says.
If the Labor Department’s new analysis of the rule finds that it adversely impacts access to investment advice, or if the rule is found to be inconsistent with President Trump’s priority to facilitate Americans’ ability to save, then the order directs Labor to write a new regulation “rescinding or revising” the existing rule.
“The ultimate litmus test of the order seems to ask whether the rule is at odds with the President’s populist priority of helping people save for retirement,” said Blaine Aikin, executive chairman of Fi360, a provider of fiduciary compliance tools.
“People have looked at this order and presumed the outcome will be a decision to rescind or replace the rule, but I’m not sure that’s a layup from a practical perspective,” added Aikin, a proponent of the rule.
He points to the strong consumer protections in the rule, and argues it clearly comports with the higher priorities the executive order places on expanding access to retirement products and advice.
The specific questions the order raises as to whether the rule will drive up the cost to invest and reduce access to advice have already been answered, says NextCapital’s Foregger.
“Industry has clearly stepped up to the plate responding to the rule,” said Foregger. “What we are witnessing is more people are going to have access to advice, and because of new competitive forces created by the rule, the cost of advice is going to go down, as well as the cost of specific products.”
The first directives in the President’s executive order—the priorities to “empower Americans to make their own financial decisions” and “to facilitate the ability to save for retirement”—are clearly advanced by the rule, thinks Foregger.
“The rule increases the opportunity for the average American to get financial advice by aligning client and industry interests,” he said. “The rule’s entire purpose is about empowering Americans to get better financial advice from the professionals they rely on.”
Will stakeholders have input into new impact analysis?
An inquiry to the Labor Department as to whether it will begin its economic and legal analysis before the Labor Secretary and Assistant Secretary are confirmed was not returned before press time.
Also unclear is what role stakeholders will have in the new impact analysis. “That’s a big wildcard,” said Foregger.
“Clearly the executive order directs Labor to open up the patient,” added Foregger. “The question is are they going to kill it before it goes live on April 10, or are they are going to keep the examination going after. It feels like the latter is happening.”
Both Foregger and Aikin expect there will ultimately be revisions to the rule, particularly its Best Interest Contract Exemption, which serves as the main enforcement mechanism for the regulation and includes a provision allowing investors to bring class-action claims for breaching fiduciary requirements.
Revisions may also include how the rule treats fixed indexed annuities and other products classified as prohibited transactions.
But even revisions that satisfy the rule’s opponents will not come quickly. Aikin thinks rewriting the rule could take up to two years, and could potentially incur legal challenges if the economic and legal analysis doesn’t adequately prove that the rule impairs the priorities laid out in President Trump’s executive order.
In the near term, Aikin expects the April 10 date to be delayed in order to assure the needed time to complete the new impact study.
“The odds favor a delay, but a delay is not a solution,” said Aikin. “It would only perpetuate the current state of limbo.”