The White House published the Presidential Memorandum on Fiduciary Duty Rule late Friday afternoon, February 3. Contrary to reports circulated prior to the Memorandum’s official publication, the President did not extend the Department of Labor’s Fiduciary Duty Rule’s April 2017 applicability deadline. Instead, the President directed the DOL to examine the Rule and to rescind or revise the Rule “as appropriate and as consistent with law.” In response, the DOL is evaluating its options to delay the applicability date of the Rule in light of the Memorandum. The Rule appears to be back in limbo until the DOL acts.
The Memorandum provides little insight on the future of the Rule. It is clear, however, that the White House is demanding a careful analysis of the Rule by the DOL, and the President expects the DOL to follow his priorities. The Administration stated that it intends to prioritize Americans’ ability to make their own financial decisions, save for their retirement, and build individual wealth, for the purchase of homes, college, and for unexpected emergencies. In other words, it is the Administration’s stated goal to put Americans’ financial futures back in their own hands. These priorities align with prior comments from the President’s advisors that the Rule would unfairly limit Americans’ ability to make financial decisions.
The DOL has been directed to reevaluate the Rule in three specific areas, and determine whether:
- the Rule may harm investors’ ability to access retirement savings offerings, products, information or advice;
- the applicability or implementation of the Rule will cause disruption in the financial services industry that will adversely affect retirees; and
- the Rule is likely to result in an increase in litigation and consumers’ costs to access the retirement market.
If the DOL answers any of the questions in m affirmative, then it is required to propose a rule (for notice and comment) “rescinding or revising the Rule, as appropriate and as consistent with law.”
Many of the questions appear to be designed to be answered in the affirmative. Financial services providers have expressed concern that, due to the disclosure and compensation rules contemplated by the Rule, there may be products that they could no longer offer to consumers without potentially running afoul of the Rule. Many in the industry have predicted industry disruptions – consolidation of providers and the increased use of robo-advisers – that may limit opportunities to obtain financial or retirement advice. And finally, due to the Rule’s lack of a regulatory review procedure or enforcement mechanism, the risk of litigation to hash out what is, or is not, acceptable under the Rule is very strong.
Congress’s response to the Memorandum is falling along traditional party lines. Republican House members supporting the review and potential repeal of the Rule harken back to statements made about the Affordable Care Act: “If you like your financial adviser, you should be able to keep your financial adviser.” (Rep. Jeb Hensarling (R-Tex.)) Democrats continue to strongly support the Rule to protect Americans’ retirement savings: “A repeal of these common sense rules will only benefit powerful lobbyists representing insurance companies, big business, brokers and banks, not the millions of working families across the country who would be left vulnerable to their predatory practices.” (Rep. Maxine Waters (D-Calif.))
We will report on future developments.