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On fiduciary rule, Trump could actually add more exemptions

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CHICAGO ― To effectively undo the fiduciary rule, the Trump administration may have to take an alternative path to wholesale rescinding the controversial regulation.

"It is remarkably difficult to do rule-making," said Aron Szapiro, director of public policy research at Morningstar. "It requires you to check a lot of boxes. If you do it wrong, you will be challenged in court."

The Labor Department's extensive impact analysis conducted in 2016 under the Obama administration "makes it very difficult to unwind everything," Szapiro told attendees at Morningstar's annual conference.

The Labor Department delayed the rule's implementation date after President Trump requested a review of the regulation. That move left the industry, which has spent millions to update systems and processes to comply with rule, in limbo. To overturn the regulation, the Labor Department would have to issue a new economic analysis, asking the same professional staff to reverse their previous conclusions.

"The argument has now shifted to what will the enforcement mechanism going to look like," Szapiro said.

That could be adjusted through the creation of new exemptions or carve outs, he said.

"I think they'll come up with another way to comply that doesn't necessarily involve a private right of action where you could be sued by investors," he said, nodding to one of the brokerage industry's biggest concerns with the regulation.

Fiduciary supporters, on the other hand, have feared this potential outcome, seeing it as a way to water down the rule while allowing brokers to present themselves as fiduciaries to clients.

Earlier this year, HighTower CEO Elliott Weissbluth decried the possibility of more exemptions being added, describing it as "Swiss-cheese a rule."

"I find that odd that we would have a protection for consumers and then we're fighting and arguing[about] when there should be exemptions to that standard," Weissbluth said. "How would we feel if we were to create exemptions to the Hippocratic oath?"

Still, the rule's ultimate fate is up for grabs. Supporters and opponents are jockeying for influence with the Labor Department. Just during the 15-day comment period on whether to delay implementation, the Labor Department received about 193,000 comments. Some brokerage firms asked for a delay of a year or more, while others requested the rule be completely rescinded.

Meanwhile, some fiduciary supporters have begun pressing members of Congress to speak out on the issue in a bid to build public pressure to prevent the Trump administration from touching the regulation.

"There is a lot of uncertainty about what will happen," Szapiro said.

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