When President Donald Trump took
office, many in the financial industry were confident that a looming
retirement-savings rule they had opposed for years would soon be dead. To their
dismay, the core principle of the rule was implemented Friday.
The resilience of the so-called
fiduciary rule is partly attributable to delays in appointing senior officials
at the Labor Department, the rule’s creator, who would be capable of unwinding
a major regulation so close to its implementation, according to industry
representatives and consumer advocates involved in the process.
Labor Secretary Alexander Acosta didn’t
take up his post until late April, after Mr. Trump’s first pick for the role
withdrew from consideration. Other top positions at the Labor Department remain
vacant, leaving career officials—who had helped to write the original rule—to
shepherd a review of the rule that the president requested in February.
Aversion toward the risk of
litigation from consumer groups has also made the administration reluctant to
delay the rule long enough to allow for an overhaul or kill it altogether,
industry representatives and consumer advocates say.
White House representatives did
not provide comment.
Mr. Acosta, a former law-school
dean, followed the required rule-making procedures strictly, rather than taking
a risk in delaying the rule.
The Labor Department is
implementing the regulation in two stages. The core principle that went into
effect Friday—two months after the original date set by the Obama
administration—requires brokers and advisers who work with tax-advantaged
retirement savings to be “fiduciaries” who act in the best interest of their clients.
Previously, they were required to offer guidance that was “suitable,” a looser
The rule’s operational
requirements, such as disclosure of conflicts of interest to investors, will
become applicable in January. The regulation is aimed at avoiding conflicts of
interest, which can come about with commission-based compensation.
The rule’s critics say it would
punish smaller savers in the form or reduced access to financial advice and
THE ROAD TO THE FIDUCIARY RULE
- September 2010: Labor Department releases
first version of the rule, withdrawing it a year later amid industry
- February 2015: Labor Department
reproposes the fiduciary rule after being urged to do so by President
- April 2016: Labor Department releases the
final version of the rule, planning for it to be “effective” June 7, 2016,
and “applicable” April 10, 2017. Full compliance is required by Jan. 1,
- October 2016: Anthony Scaramucci, a close
associate of Donald Trump, calls the fiduciary rule ‘the dumbest decision
to come out of the U.S. government’ in decades.
- Jan. 20, 2017: President Trump takes
- Feb. 3: Trump issues a memo requesting
re-evaluation of the fiduciary rule.
- Feb. 15: Andy Puzder, Trump’s first pick
for Labor Secretary, withdraws.
- March 2: Labor Department proposes a
60-day delay for the rule.
- April 4: Labor Department announces new
“applicability” date of June 9, delayed from April 10.
- April 27: Alexander Acosta confirmed as
- May 22: Acosta announces the rule will go
live June 9 in a Wall Street Journal opinion piece.
- June 9: The core element of the fiduciary
rule is implemented.
- Jan. 1, 2018: The rule’s operational
requirements are set to become applicable.
The Labor Department continues to
re-evaluate the rule per Mr. Trump’s February order. Meanwhile, Mr. Acosta said
this week the administration had taken its “first step” to decide the
rule’s fate, with the Office of Management and Budget requesting information on
the rule. The OMB is the gatekeeper in the rule-making—and
But some in the industry say it
is too late.
“We have growing concerns about
the ability to fix or significantly alter the fiduciary rule now that it is set
to begin on Friday,” said Edward Mills, an analyst at FBR Capital Markets &
The rule’s survival shows the Trump
administration’s difficulties in meeting its pledge to roll back regulations
because it doesn’t have people in place to carry out the job. Hundreds of top
government positions remain unfilled. At the Labor Department, nominations
haven’t been made for the dozen or so positions that require Senate
confirmation, including assistant secretary for employee benefits security, the
overseer of the fiduciary rule.
“Many of the pieces were still
missing at the DOL,” said Fred Reish, a lawyer at Drinker Biddle & Reath
LLP who specializes in fiduciary issues. ”If Trump wants to implement his
agenda through abolishing regulations, he’s going to have to fill a lot of
Unwinding the fiduciary rule was
tough to begin with. Unlike some of the recent Obama-era rules that the
Republican-controlled Congress has successfully overturned, it was already
effective when Mr. Trump took office, just waiting to become applicable. That
meant changing or delaying the rule required the department to go through a
lengthy rule-making process again under the Administrative Procedure Act and
prove that revising it would bring clear net economic benefit.
Even with the clock ticking, the
action was slow to come. Mr. Trump’s memo asking for a re-evaluation of the
rule was issued Feb. 3. Time was wasted over his first pick for labor
secretary, fast-food executive Andy Puzder, who was opposed by labor unions and
eventually withdrew in February amid allegations of domestic abuse. In early
April, the department announced the main part of the fiduciary rule would
become applicable in June. Meanwhile, consumer groups supporting the rule
stressed that delaying it would be “arbitrary” and “capricious” and open the
department to legal challenges.
By the time Mr. Acosta, a safe
pick with known Democratic support, was confirmed on April 27, he had little
time left. He declined all requests for meetings from industry executives who
wanted him to put the rule on hold. On May 22, he said the rule would go live
on June 9, writing in a Wall
Street Journal opinion column that “Respect for the rule of law leads
us to the conclusion that this date cannot be postponed.”
“Acosta is a smart lawyer. He is
not an ideologue,” said Mercer Bullard, a law professor at the University of
Mississippi who supports the rule. “If Puzder had been appointed, that rule
probably wouldn’t have been implemented,” he said, adding that would have led
to a lawsuit by the rule’s proponents, which the department would have lost.
here for the original article from Wall