President Donald Trump’s order for a regulatory freeze has led the financial industry to wonder about the fate of the Department of Labor’s fiduciary duty rule that will define how financial advisers handle retirement accounts.
But although some industry groups have urged Trump to delay or reverse the rule, local experts think the regulation, some six years in the making, is still likely to be fully implemented this spring.
“It would be difficult to reverse this one at this point,” said Karyl Leggio, finance professor at Loyola Maryland University’s Sellinger School of Business. “Many firms have already begun preparing to implement this rule.”
The impending rule will require people who manage retirement funds to act as fiduciaries. While reporting requirements associated with the rule change may be seen as too onerous for some advisers, it creates an opportunity for other companies already in compliance.
“We use the example of the when you’re sick, do you go to a pill salesman or a doctor to help you?” said Clark Kendall, president of Rockville-based Kendall Capital.
The 12-year-old firm has already implemented the rule, Kendall said.
The term “fiduciary” is often used as a way for advisers to assure their clients that the adviser is focused on the client’s best interests and is not swayed by other compensation. The new rule will require people who give investment advice for retirement plans, plan sponsors, fiduciaries, plan participants, beneficiaries and IRAs and IRA owners to adhere to specific requirements in order to call themselves a fiduciary.
The Department of Labor could delay the rule by going through another public notice and comment period, or the Trump administration could issue an order to delay under an “interim rule,” which would not require public comment, a move that industry experts are hoping for, Investment News reported.
However, it’s not that easy. While the rule’s official implementation deadline is April 10, it went into effect in June of last year.
“This is more complex, because it’s not a pending regulation. It may not be implemented fully but will take more than a freeze on new regulation,” Leggio said, adding that a later repeal of the rule is more likely.
The administration could also take the legislative route. Rep. Joe Wilson, R-South Carolina, has introduced the Protecting American Families’ Retirement Advice Act to delay the implementation of the rule to two years after the act is passed, the bill said.
Still, there is a lot of uncertainty about Trump’s intentions and priorities with the regulatory freeze.
The U.S. Chamber of Commerce, which took former President Obama to court over the rule, hopes Trump will at least delay the implementation date.
“The fiduciary rule should be rescinded completely — if not by the courts, then by the incoming Trump administration. But at a minimum, given the breadth, complexity and significance of its rule, there needs to be more time for covered entities to properly implement it,” the chamber said.
That National Association of Plan Advisors is skeptical of Trump’s ability to stop the rule.
“Indeed, the whole point of having a June 2016 effective date was to insulate this regulation from this type of freeze. Not that a delay in the implementation of the fiduciary regulation isn’t possible, even likely. But this doesn’t appear to be what makes that happen,” the association said on its website.
Government process aside, Clark doesn’t see the fiduciary rule as a top priority for Trump, with his focus being more on local manufacturing and job creation. On Monday, Trump met with business executives, including Maryland’s Kevin Plank of Under Armour and Marillyn Hewson of Lockheed Martin.
“It seems like there’s other things he should be addressing before this,” Kendall said.
Even if the future of the fiduciary rule seems uncertain, Kendall recommends firms move forward with complying with the rule because it strengthens advisers’ relationships with their clients.
“If you treat the clients right and do the right thing, long term your firm and products will have success,” he said. “If he (Trump) wants to make America great, as part of making America great, people in the financial services industry, now more than ever, need to serve as a fiduciary.”