One of the key issues that president elect Donald Trump may act on is repealing the Department of Labor’s new fiduciary rule that was handed down earlier this year and will go into effect in April of 2017. There have already been several lawsuits filed against this rule, but Trump’s agenda may signal its demise, or at least some substantial revisions. Here’s what Trump could do if he wants to kill this rule in its present form.
One of the ways that Trump could kill the fiduciary rule is by appointing a new Labor Secretary (which of course he will do) who could scrap the rule and replace it with a temporary set of regulations that would apply to financial advisors who manage retirement accounts. Analysts at Washington Analysis have stated their opinion that Trump will indeed replace the current Labor Secretary early next year, and that the new secretary will immediately move to halt the rule from becoming law. They believe that the new secretary will either “seek to simply delay implementation to revisit and review the impact of the fiduciary rule, or will opt to take a more aggressive approach by starting an entirely new rulemaking. We view the next Secretary of Labor as having considerable flexibility in choosing a path forward that does not involve implementing the current fiduciary rule.” (For more, see: Trump Advisor Promises Repeal of Fiduciary Rule.)
But some pundits question whether Trump will address this issue during the first 100 days of his administration. Andy Friedman of The Washington Update told ThinkAdvisor that if scrapping this rule “is a high priority of the new administration, it will happen one way or another.” But, “if taking action is far down the list of priorities, it is possible the new rule could take effect before repeal procedures are finalized.”
There are three ways that the DOL fiduciary rule could be overturned. One way is by an act of Congress. In this case, there is a distinct possibility that this could happen, as the Republicans now control both levels and there are some Democrats in the Senate who also have misgivings about the rule. Another method is through the issuance of a new proposal to repeal the rule, which would then be followed by the standard period of several months where feedback and testimony is provided by industry experts and insiders. However, this process could not be completed before the rule becomes effective in April. The third option is to simply allow the courts to decide on the matter, although experts feel that this option will be unlikely at this point.
Financial planner Michael Kitces offered his own view on what will happen to the Department of Labor’s fiduciary rule. He stated in a recent radio broadcast that because the rule was actually created this past April, it is already officially in force, although it will not be enforced until next April. But this means that Trump will not be able to just arbitrarily halt the rule. (For more, see: Lawsuits Aim to Overturn DOL's Fiduciary Rule.)
Kitces reminded his listeners that it took the Obama Administration almost six years to update the prior fiduciary rule to the form that it has now. He believes that if Trump tries to halt the rule, the fiduciary advocates could sue the Department of Labor and win. But Trump will have the power to “defang” the rule by instructing the Department of Labor to reduce enforcement of it to a minimum. Another possible outcome could be that Republicans pass a law that eliminates the class action lawsuit provision that the rule currently contains. Kitces questions whether Republicans could get enough votes in Congress to repeal the bill outright.
The Bottom Line
Time will tell the ultimate fate of the fiduciary rule. Trump has pledged to address a number of other issues during his first 100 days in office, and he may not be able to fit this issue into his schedule during that time. If he waits until the fiduciary rule has officially become enforceable, then it may be more difficult for him to repeal or change it. (For more, see: Can Trump Roll Back the Fiduciary Rule?)