Don't buy the hype: Trump's Dodd-Frank order a whole lot of nothing
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President Trump’s executive order on regulating the U.S. financial system is a bit of a disappointment. Despite a lot of media hype about Trump upending Dodd-Frank and other Obama regulatory policies, the order does nothing significant and reflects little urgency.

Instead, it sets out a few “core principles” and enjoins the agencies of the Trump administration to regulate the economy with reference to these general goals.    

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Although many media stories cited the order as the beginning of the Trump effort to reform the Dodd-Frank Act, the order itself does not mention the act, or even the economic harm — often cited in Trump campaign speeches — of excessive regulation.

Instead, it specifies goals like “empower Americans to make independent financial decisions” and “foster economic growth and vibrant financial markets through more rigorous regulatory impact analysis.” Most surprisingly, it says nothing about either deregulation or jobs — the ostensible reason for regulatory reform.

It is a familiar plot device in government that, when you have no idea what to do, you put out a statement of “core principles.” These sound fundamental, suggest some future action, but avoid controversy because they are so high level and general that almost everyone can agree with them.

Nevertheless, the White House actually got a lot of political mileage out of something that didn’t amount to much.

The Wall Street Journal, perhaps indulging in a bit of wishful thinking, even editorialized that, “President Trump is focusing early on rolling back regulation, and on Friday he took another good step with directives to peel back Dodd-Frank and the Labor Department’s fiduciary rule.”

That’s reading a lot into a little.

What is worrisome here is that, while Trump campaigned on deregulation as the key to job growth, his staff is not willing to put him front and center on the issue. They may not even think it is necessary. If this becomes clear to the business community, the bloom will soon be off the Trump rose.

The executive order on the "fiduciary duty" rule showed a little bit more moxie, directing the Labor secretary to determine whether it “may adversely affect the ability of Americans to gain access to retirement information and financial advice.”

This is the correct approach; it specifies the problem and asks the Labor secretary to consider it. That’s how the overturning of a harmful regulation should begin.

Although the media continues to state that the rule would require retirement advisers to “act in the best interests of their clients,” it is in fact the opposite for most clients.

The rule defines advisers as “fiduciaries,” ostensibly to assure that the client is not advised to make an investment because it pays a higher fee to the adviser. This can certainly happen, of course, but it’s using a sledgehammer to kill a fly.

A fiduciary’s obligations go well beyond simply finding the cheapest investment for his or her client. A fiduciary is obligated to act for the client as a reasonable person would act in the management of his own affairs.

This is a very high legal standard and subjects the fiduciary to liability if he misses it. To adequately carry out a fiduciary’s duties could require adviser to know much more about the client  — his or her family, tax position, age, health and business prospects — than simply his or her investment interests.

To avoid the danger of legal liability, advisers will simply stop advising clients who don’t have the resources to pay separately for the advice. This will leave many investors without the benefit of any retirement investment advice.

The rule should be repealed, but to avoid the kind of legal controversy that has accompanied the president’s immigration order, the White House has wisely chosen to leave the rule’s fate to the agency that created it.

 

Peter J. Wallison is a senior fellow at the American Enterprise Institute. He was general counsel of the Treasury and White House counsel in the Reagan administration.


 

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