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How Trump Could Delay DOLs Fiduciary Rule

Jeremi Karnell
Jan 31, 2017

The vast majority of the pundit class and a significant portion of the American electorate were incredibly surprised by the Election Night results. They watched in disbelief as state after state fell from Hillary Clinton's grasp and landed squarely in Donald Trump's win column. Almost immediately, the worries began, with many voters wondering what the immediate and long-term future would bring.

Those in the political class worried about everything from who President Trump would appoint to the Supreme Court to how his plans for a border wall would affect long-standing personal and business relationships with those in other countries.

Financial professionals had their set of concerns, and as Election Night drew to a close, it looked like some of their worst fears could soon come to fruition. The stock market is notorious for its dislike of surprises, and the American electorate had just handed it a whopper.

Many in the financial industry predicted a steep and immediate selloff in stocks, and the reaction of the futures market seemed to bear that out. The drop was steep enough that many people started predicting an imminent bear market, and financial advisors and wealth managers were inundated with calls from worried clients.

We all know what happened in the aftermath of the election, and in hindsight, it certainly seems those initial worries were overblown. By the time the dust had settled, that much-anticipated stock market selloff had failed to materialize, and a longstanding rally appeared in its place.

Now that President-Elect Trump is officially President Trump, it is time to take a step back, look at what has already happened and look ahead to what may occur in the future. The new president has wasted no time getting down to work, signing executive orders to dismantle his predecessor's signature health law, reversing special mortgage terms for low-income home buyers and promising to pull the United States from the TransPacific Partnership trade agreement.

Those fast actions have many in the financial industry wondering if President Trump will also take a harsh line on the upcoming implementation of the Department of Labor and its new Fiduciary Rule. That Fiduciary Rule is currently slated to take effect in April of 2017, but like much in the financial world, that implementation suddenly appears to be up in the air.

While President Trump has not yet expressed a particular opinion on the upcoming DOL Fiduciary Rule, he certainly has taken aim at regulation in general. During the final days of the campaign, Donald Trump famously promised to eliminate two regulations for every new regulation that was implemented. That seems to bode well for financial professionals who were hoping the DOL Fiduciary Rule would be eliminated, or at least delayed.

Now that he has officially taken power, there are two ways President Trump could delay or otherwise derail implementation of the Department of Labor Fiduciary Rule. It is important to note that time is getting short, with less than three months to go before the new rules take effect. Even so, the fast-moving nature of the Trump transition seems to suggest that the rule could soon fall - that is if it gets the attention of the new president.

There are two ways President Trump could target the implementation of the Department of Labor Fiduciary Rule. President Trump could direct the Department of Labor to propose a delay of the Fiduciary Rule subject to a public comment period. That tactic would give financial professionals, individual savers, and other interested parties more time to review the specifics of the Fiduciary Rule.

The public comment period could also serve as an educational opportunity for both clients and financial professionals. By imposing the delay and the public comment period, President Trump and the Department of Labor could also give financial professionals more time to prepare for upcoming regulation, no matter what form that regulation ultimately takes.

There is another way in which President Trump could delay or derail implementation of the Department of Labor Fiduciary Rule. Instead of imposing a new comment period and a related delay, President Trump could simply issue an interim ruling.

That interim ruling would seek a delay of the Fiduciary Rule's implementation based on good cause, and that is the path many in the financial planning and wealth management industries hope he will take.

Those in the financial industry see some benefits to the use of the interim rule. If President Trump truly wants to delay or derail the implementation of the DOL Fiduciary Rule, doing so through the interim rule would eliminate the need for a public comment period. That could simplify the delay and make it easier for financial planners, wealth managers, and others on the front lines of the industry.

Using the interim rule to delay action by the Department of Labor could also allow President Trump to roll back other pending legislation, something the incoming administration has already promised to do. President Trump's dislike of regulation was clear during all aspects of the campaign, and strategic use of the interim rule could help him delay or roll back all kinds of upcoming regulations.

If President Trump does indeed use the interim rule to delay upcoming Department of Labor regulations, the administration would need to show good cause for the delay. This good cause requirement could take some forms, and it is still unclear which tactics will be used.

The Trump administration could argue that the industries impacted, from individual brokers and financial advisory firms to wealth managers and mutual fund companies, need more time to adapt to the new DOL Fiduciary Rule. That would certainly be appropriate since some in the financial industry are only partway through the changes they would need to implement.

The Trump administration could also argue that the very people the law was intended to help, namely individuals saving for retirement, would be ill-served by a rushed implementation of the Fiduciary Rule. The administration could argue, for instance, that retirees would be ill-served by brokers who still need additional time to adapt to the new regulations.

No matter what happens, many in the financial industry expect the Department of Labor Fiduciary Rule to be delayed by at least 60 days. That is certainly good news for owners of practices who have not fully adjusted to the new regulations. A delay of 60 days would put the implementation of the Fiduciary Rule some time in June of 2017, giving financial professionals two extra months to prepare.

So far it looks likely that the implementation of the Department of Labor's Fiduciary Rule could be delayed by 60 days or more, but that does not mean financial professionals should become complacent. It is still important for practice owners to review their businesses, and services like Truelytics can provide the assistance they need. The only thing certain in politics is uncertainty, and that means practice owners need to prepare for the unexpected.

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