Trump and the Fiduciary Rule: The Uncertainty of What’s Ahead

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By Jacklyn Wille

The Labor Department’s fiduciary rule has had a roller coaster ride of a week, with a federal judge forcefully upholding the rule one day and the department proposing to delay the rule’s compliance deadline the next.

The Obama administration rule, which purports to cut down on conflicted advice given to retirement savers by the financial industry, has faced an uncertain future since Donald Trump’s election in November. President Trump took action on the rule on Feb. 3—a mere two weeks into his presidency—when he signed a presidential memorandum ordering the Labor Department to rethink the rule in light of certain articulated policy preferences.

What does this mean for the rule’s future? A group of lawyers met at a Feb. 9-11 American Bar Association conference in Austin, Texas, to discuss the rule’s fate—and to try to read tea leaves on where Trump’s priorities may lie.

Opportunity for Populism

The fiduciary rule appeared to be on life support following Trump’s election, but could he surprise the entire industry by being the rule’s savior?

Maybe so, according to Brendan S. Maher, a plaintiff-side employee benefits litigator and partner with Stris & Maher LLP in Los Angeles.

“The future of this rule is interesting, because whatever we believe about Trump, he ran on a platform of economic populism,” Maher said. “This is actually a fairly easy place for him to score some points.”

Because the fiduciary rule is aimed at helping “little guy consumers” in the face of controversial financial industry practices, it presents Trump with an opportunity to curry favor with those who support his more populist tendencies, Maher said. He was quick to add that he’s “not that optimistic” this scenario will play out.

“I think the future of the rule depends on the political will of the Trump administration, which is less predictable than we might expect,” Maher said.

Others saw things differently.

“I think there probably aren’t very many people who voted for Donald Trump because of things like the fiduciary rule,” said Steven P. Lehotsky, vice president and chief counsel for regulatory litigation with the U.S. Chamber of Commerce. The Chamber was one of several groups that lost a legal challenge to the rule in federal court in Texas Feb. 8.

Lehotsky said that Trump supporters were more likely to be motivated by his “core issues,” such as trade, immigration and national security.

Is Delay on the Table?

Trump’s Feb. 3 memorandum on the fiduciary rule may have been more noteworthy for what it didn’t do than for what it did. Contrary to rampant industry speculation, the memo did nothing to delay the rule’s April 10 compliance deadline.

The industry had good reason to count on such a delay: a “widely circulated” draft memorandum would’ve extended the deadline by 180 days, said Erin Sweeney, an employee benefits attorney with Miller & Chevalier in Washington.

This about-face may stem from a realization that any such delay should come from the Labor Department itself and not from a stroke of the president’s pen, Sweeney said.

Indeed, less than 24 hours after the attorneys spoke, the Labor Department sent to the Office of Management and Budget a proposal that’s expected to delay the rule 180 days after a short notice and comment period.

For his part, Lehotsky said the Labor Department had an “easy route” for delaying the rule: namely, invoking a provision of the Administrative Procedure Act that allows a rule’s effective date to be delayed pending judicial review.

Even though the fiduciary rule’s effective date occurred in 2016, shortly after it was published?

Yes, said Lehotsky. He challenged the idea that the fiduciary rule’s effective date had already passed, saying that “no one is bound by the fiduciary rule at this moment.”

The Labor Department can “call something an effective date, but that doesn’t mean it’s an effective date” within the meaning of the Administrative Procedure Act, Lehotsky said.

Lehotsky’s characterization was sharply contested the next day by Phyllis Borzi, the former assistant secretary for the Department of Labor’s Employee Benefits Security Administration and one of the driving forces behind the fiduciary rule.

Borzi called this a “very interesting” and “somewhat dangerous” argument. If this characterization carries the day, Borzi said, government agencies would be far less likely to give industry players a transition period before being forced to comply with a new regulation.

“I can’t imagine a court buying it,” Borzi said of Lehotsky’s argument. “But that’s just my 2 cents.”

But Is the Rule Going Away?

The presidential memorandum and the three favorable judicial decisions surrounding the rule have drawn many headlines, but for those in the industry, the question is a simple one: Will they ultimately have to comply with the rule, or will it be revoked or weakened?

Despite all the fuss, the rule may be here to stay, according to Peter S. Dickinson, a labor lawyer and partner with Bush Gottlieb in Glendale, Calif.

“It’s very hard to undo a regulation,” Dickinson said.

He added that three federal judges have upheld the rule and two have done so on “well-developed records.”

Borzi echoed these thoughts, explaining in detail the lengthy regulatory process that gave birth to the fiduciary rule. She expressed doubt that the financial industry could offer new and compelling evidence not previously considered by the department that would justify a decision to repeal or significantly weaken the rule.

Moreover, the detailed, six-year regulatory process used to create the fiduciary rule should serve as a “cautionary tale” for anyone who thinks it would be a “simple exercise” to rework the rule going forward, Borzi said.

For her part, Miller & Chevalier’s Sweeney noted that two of the three policy considerations mentioned in the presidential memorandum—whether the fiduciary rule will restrict access to investment advice or increase litigation—were addressed by Chief District Judge Barbara M.G. Lynn, the most recent federal judge to issue an opinion approving of the fiduciary rule.

Borzi went further, saying that Lynn “sprinkled throughout” her opinion statements responsive to all three of Trump’s policy considerations, including the preference against disruptions within the retirement services industry.

Sweeney added that the more “elegant solution” may be for Congress to act, but the dysfunction and other priorities on Capitol Hill could make that unlikely.

Industry Movement

Despite the constant commotion surrounding the fiduciary rule itself, it’s worth noting how the financial industry has responded to the idea of a fiduciary standard. According to Dickinson, many players in the financial industry—including Morgan Stanley, Merrill Lynch, Fidelity and Prudential—have taken significant steps toward complying with the rule.

“These companies realize it’s not that big a deal and that it’s actually good business to say in their marketing materials that they look after their investors,” Dickinson said.

Maher of Stris & Maher echoed this idea. His firm represents the Financial Planning Coalition, a collection of groups representing tens of thousands of financial planning professionals who are largely supportive of the fiduciary rule.

Maher also expressed doubt that the “parade of horribles” envisioned by fiduciary rule opponents such as the Chamber would come to pass if the rule is left standing.

“The idea that financial professionals are going to stay away from trillions of dollars in retirement money just because they don’t want to live up to a fiduciary standard is hard for me to swallow,” Maher said.

Borzi counted this industry movement—and the growing emphasis by individual investors on the fiduciary standard—as one of the things she was most proud of during her tenure at the Labor Department.

“More and more consumers are saying to their financial advisers, ‘Are you a fiduciary? If so, put it down in writing,’” Borzi said. “That’s a marvelous step forward.”

To contact the reporter on this story: Jacklyn Wille in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

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