Financial adviser rule could be in Trump's crosshairs

Financial adviser rule could be in Trump's crosshairs
© Getty Images

A new Department of Labor rule focused on financial advisers fees and practices will likely be a target for suspension or outright termination once the Trump administration takes office on Jan. 20. 

The regulation, known as the fiduciary rule, was championed by the Obama administration and will hold financial advisers who manage retirement accounts to dramatically higher standards should it reach its effective date of April 10.

ADVERTISEMENT
The financial sector has criticized the rule, which includes a Best Interest Contract Exemption that allows customers to file class action lawsuits against unregistered advisers who they believe do not act in their best interest.

Suspension and then what?

Jill Hoffman, vice president of government affairs for Financial Services Roundtable, told The Hill Extra she expects the Trump administration to initially suspend the rule upon taking office, given his campaign platform. 

“The Trump campaign made very clear that any new regulations from the Obama administration that were not compelled by Congress or for public safety there’s a plan to put a temporary hold on any of those regulations,” Hoffman said. “We can reasonably assume that there’s going to be some kind of freeze on, not just the DOL rule, but any other rules not compelled by Congress or for public safety reasons.”

Brian Gardner, managing director of financial services firm KBW, told The Hill Extra the length of the suspension is entirely up to the new administration. Following the suspension, the administration has to determine how to proceed, he said. 

“They can replace the new regime with a framework based more on disclosures instead of a prescriptive approach that the [Secretary Thomas] Perez DOL imposed,” Gardner said. “They could opt to scrap it altogether and leave the current rules in place.

“They could scrap the current rule and do a joint rule-making to have a unified fiduciary rule,” he said.

Unity

Jim Angel, associate professor at Georgetown University’s McDonough School of Business, told The Hill Extra he expects the Trump administration to look to the Securities and Exchange Commission to create a unified fiduciary rule that would help clarify complexities associated with varying regulations imposed on market participants.

“It’s kind of a low-hanging fruit to say, ‘Wait a minute, folks at Labor came out with something really complicated, really messy and it only applies to part of [the industry],’” Angel said. “‘Let’s step back and let the SEC do the right thing, which is to come up with a rule that applies to all retail financial advice and protects consumers without the complexity of the Best Interest Contract Exemption.”

Time and money

Many firms have poured money and resources into updating their compliance standards ahead of the April effective date. Firms must now decide whether to continue preparing or to scrap their new programs, Hoffman said.

“For the amount of money and staff time that they have applied to getting ready for this rule to become fully implemented, they’re going to have to make the assessment that their firm needs to continue as if the rule is going to be implemented or if it makes sense to put it on hold,” she said. 

Both Hoffman and Gardner said they believe many firms will root for a rule suspension despite the sunk costs of compliance. Several firms are falling behind what Gardner said was an aggressive enforcement schedule. 

“I think there are a number of firms still grappling with the nuances of the new rule,” Gardner said. 

On the horizon

Ultimately, some firms are likely eager to work with the Trump Administration to get a fiduciary rule on the books with the knowledge that a Democratic administration and Congress could return in the future, Gardner said. 

“I think they’d rather try and address this issue now and get something that is workable in their view and that preempts future action that may be more adverse to their interests and their business models,” Gardner said. 

See more exclusive content policy and regulatory news on our subscription-only service, The Hill Extra.

Updated: Nov. 15, 12:11 p.m.