DoL fiduciary rule delay seeks to outflank Trump's opponents
In a bid to "preserve the status quo," the Department of Labor has moved to delay the fiduciary rule by six months and open up a new comment period about it.
That's according to Jason Roberts, an ERISA attorney and consultant, who says he could not identify his sources for the information. Financial planning academic Ron Rhoades also confirmed the DoL move, citing anonymous sources.
The DoL moved for the delay by sending two documents to the Office of Management and Budget. A notice of the delay is currently online; the documents are expected to be published in the daily Federal Register, both men say.
One document would delay the rule's implementation by six months, following a short comment period of about two weeks, Roberts and Rhoades say; the other would open the rule for broader public comment.
The rule, written under the Obama administration and currently scheduled to take effect April 10, would compel all financial advisers, including brokers, to put their clients' financial interests before their own.
"The tactic makes perfect sense," says Roberts, founder of the consulting firm Pension Resource Institute, which counts large independent broker dealers and RIAs among its clients.
Opening up a comment period gives the Trump administration time to position itself to better withstand legal challenges anticipated after the government puts a delay into place, he says.
TIME IS SHORT
A Texas judge ruled earlier this week to support the rule, dealing the third legal blow thus far to numerous industry and lobbying groups, including the U.S. Chamber of Commerce, who sued to stop it. Federal judges in the District of Columbia and Kansas also denied industry efforts to stop the rule.
In the Texas case, the Department of Justice filed a document that said the DoL would release a status report on the rule on or about March 10, according to Roberts.
But the Trump administration can't wait until that late date — 30 days before the rule's scheduled implementation date of April 10 — to seek any delay for the rule, Roberts says.
That's why it has gone ahead and announced its intention to delay the rule and open a comment period now, even though the delay now precedes the report's release, Robert says.
In arguing for the delay, the administration's strategy likely will contend that industry practice should continue as it has, and that more study is needed, he says. This is why the DoL split the actions into two separate documents filed with the Office of Management and Budget, he says.
"The path of least resistance is to simply change the applicability date," Roberts says, "Then they are not picking a fight over the substantive issues … But what they are doing is essentially saying, 'Hey, this is necessary because we have been instructed by the president that [the rule] could be harmful and to preserve the status quo, the delay is necessary.' "
DEFERENCE TO WHICH DOL?
Part of the reason three federal courts have supported the rule is that courts give great deference to a federal agency's rule-making, as long as it was not arbitrary or capricious, Roberts says.
The DoL spent more than six years working on the rule, for which it heard extensive public comment.
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If Trump simply tried to force through a delay, he could face the kind of legal opposition that has put a halt to his to order banning immigrants from seven Muslim majority countries, Roberts says.
"That could be another black eye," he says. "This makes more sense."
But if the Trump administration can achieve a delay, go through another evaluation process and ultimately rescind the rule, future courts might rule in turn to support the new DoL's change of heart, also on the basis of deference, Roberts says.
While not killing the industry's ongoing fiduciary evolution that continues to move about 1% of American savers' money to RIAs annually, Rhoades says, a delay "is going to essentially transfer tens of billions of dollars a year from the retirement savings of tens of millions of Americans to Wall Street and insurance companies. In their IRA accounts and 401ks accounts, the vast majority of consumers are still going to receive conflicted advice."
Already, Roberts says, the rule's supporters who don't want that to happen are drafting up their legal challenges to keep the April 10 deadline in place.