The Department of Labor’s (DOL) fiduciary rule reform effort, more than a decade in the making, seems more likely than ever to finally stall, according to a variety of industry experts called upon to interpret the likely impact of a Trump Administration and the Republican-controlled Congress on the employer-sponsored retirement planning market.
Asked what comes next for the DOL rulemaking, which was technically finalized under the Obama Administration but does not begin to take effect until April 2017, Brad Campbell, Washington-based counsel with Drinker Biddle and Reath, says it’s most likely the rulemaking will be overturned by the new Labor Department leadership.
Campbell, who served as assistant secretary of Labor for Employee Benefits under the Bush Administration, has been in frequent contact with the Trump Administration in recent weeks; he believes the rulemaking will almost certainly be halted before April, but having a Plan B is a good idea for prudent providers, he says. Given that there are many other priorities, such as tax reform, it may take until after the first implementation deadlines in April before the rulemaking can truly be quashed.
“There was a memo circulated recently by the president that has come out seeking to freeze and potentially pull back all ongoing regulatory projects within executive agencies,” Campbell observed, “but I agree with the notion that the DOL fiduciary rule is not really going to be impacted by that memo, because it has already been implemented. While its applicability dates are forthcoming, it is already a properly implemented regulation, and so it is not something that can be just whisked away with the stroke of a pen.”
Campbell notes that the Trump Administration will very likely (and likely very soon) issue a separate order specifically pertaining to the DOL rulemaking, adding “this is likely to occur in the very near future … such an announcement could come any day.”
Based on the conversations Campbell has had, he says it “sounds like right now there is more interest in the administration at looking at a full repeal approach, which would require a proposal, comment and finalization period. We should also keep in mind that none of the people who would lead this effort within the administration have been confirmed yet. Only the Labor Secretary has been formally nominated—many other relevant positions yet to be filled will have to play a role.”
NEXT: What a delay or repeal means for the industry
James Lumberg, executive vice president of Envestnet, is among the growing number of experts who anticipate some industry providers to charge ahead on implementing stronger conflict of interest controls in their business processes—whatever happens with the formal rulemaking.
Lumberg says that financial advisers and enterprises “realize they have opportunities to provide a fiduciary standard of advice that clients are increasingly expecting.” For Envestnet, this includes “remaining committed to technology enhancement and empowering advisers to capitalize on the fiduciary opportunity and to foster more engaged relationships with clients,” he says.
Lumberg further observes that he is very clearly seeing “massive market and consumer forces” that are reshaping the way advice is being delivered—pushing the entire marketplace toward greater use of flat fee-for-service arrangements.
“Investors increasingly expect that advisers will act in their best interest,” Lumberg continues. “There is a great deal of momentum behind implementing a broader fiduciary standard [regardless of what happens next with DOL]. Aside from evolving regulatory requirements, other market and consumer pressures such as growing client demands for fee transparency, the rise of digital-advice, goal-based investment planning, and product innovations all contribute to an anticipated shift in how advisers of the future will run their businesses.”
Not to mention the significant and accelerating growth in the volume of retirement industry litigation—much of it centered on the very issues the DOL fiduciary rule aimed to correct. According to David Levine, principal with Groom Law Group, the overhanging threat of litigation could do just as much as the DOL rule to keep pushing firms towards great control and transparency.
“The legal angle remains somewhat unclear, but there is also the business reality and the marketing angle of the fiduciary rule implementation,” Levine observes. “People have invested a lot of time and money in preparing for the rule and very few will want to just turn away from that. Some have already sold portions of their business or forged new partnerships to prepare. And so I still believe there will be a wide range of how people move forward. The vast majority will be in the middle, embracing some aspects of the fiduciary rule while resisting others.”