Trump's people-versus-business conflict starts with the fiduciary rule
© Getty Images

One of President Trump’s main campaign platforms was his intention to put the interests of the American people ahead of special interest groups, but he also emphasized that he was pro-business. We may have our first conflict — retirement participants (the American people) versus business — when it comes to upholding the U.S. Department of Labor’s (DOL) fiduciary rule. Under pressure from the White House, the agency this week proposed a 60-day delay to the rule's effective date, which would push it from April 10 to June 9.

What is the fiduciary rule?

The fiduciary rule will raise to the level of a fiduciary for all financial professionals who work with retirement plans or individual retirement accounts (IRAs) or provide retirement planning advice, meaning that they are legally and ethically required to meet the standards of that title. In short, this rule means that they will be required to always act in their client’s best interest.

ADVERTISEMENT

The DOL rule addresses the fact that investment advisors have not always had to act as fiduciaries. As a fiduciary, there is a much higher level of accountability. Once this rule is in place, advisors can no longer conceal any potential conflict of interest and all fees and commissions must be clearly disclosed to clients. Under the old rule, brokers and advisors could advertise and sell their services as if they were protecting the client, but the contract was often written otherwise.

 

Once it’s effective, the rule is expected to have some impact on all financial advisors, but it’s expected that anyone working on a commission-based structure, such as brokers and insurance agents, will be impacted the most.

While the fiduciary rule might be unpopular with these broker-dealers, the financial services industry has made considerable effort in preparation for the implementation. Accordingly, many firms have been shifting to a fee-for-service model and are altering products, advise-proffering software, compensation plans, and marketing materials.

However, others have been standing on the sidelines, hoping for a last-minute stay of the regulatory change. They might get an eventual reprieve, but not moving to a best-interest compensation practice may end up as a losing business philosophy.

White House action on the rule

Reducing federal regulations was a featured campaign goal of this administration. However, Trump also promised to act in the best interest of the people, and that presents a big conflict when considering the implications of this rule. Amid the avalanche of executive orders issued by President Trump during his first few weeks in office were two that did not make front-page headlines: one on Jan. 30 and one on Feb. 3. Both of these orders were aimed at reducing regulations on business, but the Feb. 3 order directly addresses the fiduciary rule. This action includes specific instructions for the Labor Department to conduct an “economic and legal analysis” on the rule’s potential impact.

Both orders illustrate Trump’s dedication to reducing restrictions on American businesses, but halting the implementation of the DOL fiduciary rule as an example might send the wrong message about whose best interests he really supports. Although there may be a slight delay, the fiduciary implementation is proceeding as planned on June 9, and major changes repealing the rule down the road seem unlikely.

Keith Clark is co-founder and partner at DWC ERISA Consultants, a firm dedicated to providing third party plan administration, compliance, and consulting services for qualified retirement plans. He is also an adjunct professor at the University of Minnesota’s Carlson School of Management.


The views expressed by contributors are their own and are not the views of The Hill.