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On February 3, 2017, President Trump signed an executive order instructing the Department of Labor to review its Conflict of Interest rule.
The Executive Order is styled as a “Memorandum for the Secretary of Labor.” It instructs the Secretary to “examine the Fiduciary Duty Rule to determine whether it may adversely affect the ability of Americans to gain access to retirement information and financial advice.” In that regard, the Secretary is to consider whether the rule: (i) “has harmed or is likely to harm investors due to a reduction of Americans’ access to certain retirement savings offerings;” (ii) “has resulted in dislocations or disruptions within the retirement services industry;” and (iii) “is likely to cause an increase in litigation, and an increase in the prices that investors and retirees must pay.”
If the Secretary of Labor determines that the current rule is inconsistent with those priorities, he “shall publish for notice and comment a proposed rule rescinding or revising the Rule, as appropriate and as consistent with law.”
Applicability of the rule is (currently) to begin April 10, 2017. A draft of the Executive Order instructed the Secretary to delay application for 180 days. That language was deleted from the final order, leaving it up to the Secretary to determine how long a delay is appropriate.
After the Executive Order was issued, Acting U.S. Secretary of Labor Ed Hugler issued a brief statement: “The Department of Labor will now consider its legal options to delay the applicability date as we comply with the President’s memorandum.”
We note that (as of this writing) President Trump’s nominee for Secretary of Labor, Andy Puzder, has not been confirmed by the Senate, and (because, as we understand it, of delays in the review of his paperwork by the Office of Government Ethics) hearings on his nomination have been delayed.
While the memorandum itself simply calls for a review, the Trump Administration was clear that it thinks that, in fact, the rule should be withdrawn. In a press briefing after the memorandum was signed, Press Secretary Sean Spicer said:
The rule is a solution in search of a problem. There are better ways to protect investors, and the Trump Administration is taking action to do so. … The rule’s intent may be to have provided retirees and others with better financial advice but in reality its effect is to limit the financial services that are available to them. … The Department of Labor exceeded its authority with this rule and this is exactly the kind of government regulatory overreach the President was put in office to stop.
As a clue to where this issue may be headed, at the Executive Order signing ceremony, President Trump asked Congresswoman Wagner (R-MO) to explain the order. She said: “What we’re doing is we are returning to the American people, low- and middle- income investors, and retirees, their control of their own retirement savings. This is about Main Street, and it’s been a labor of love for me for over four years as chairman. And I have had – this is a big day, a big moment for Americans.”
Wagner is the author of the Retail Investor Protection Act (RIPA). In its latest iteration, RIPA voids the Conflict of Interest rule and prohibits DOL from “defining the circumstances under which an individual is considered a fiduciary until he date that is 60 days after the Securities and Exchange Commission issues a final rule relating to standards of conduct for brokers and dealers.” In the 2016 Congress, RIPA was included in House Banking Committee Chairman Hensarling’s (R-TX) Financial CHOICE Act. Chairman Hensarling was also at the signing ceremony.
Congressional action – e.g., adoption of RIPA – is still likely to require 60 votes in the Senate. It will be interesting to see whether supporters of the rule, like Senator Warren (D-MA), will be able to unite Democratic opposition to Trump’s action – some Democrats have raised questions about the rule.
Action at DOL will ultimately depend on nominee-Secretary Puzder (or his replacement if his nomination is withdrawn) and whoever he appoints to head the Employee Benefit Security Administration.
The judge in the federal district court lawsuit challenging the rule has indicated that she intends to rule in the case on February 10, 2017.
Thus, the situation with respect to the Conflict of Interest rule remains fluid. Supporters of the rule denounced the Trump Administration action and will no doubt mobilize against it. For the moment, however, it’s clear that the Trump Administration opposes implementation, and that is a significant development.
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We will continue to follow this issue.