Will the DOL’s Fiduciary Rule Survive?

A few weeks ago, RIA Biz ran an interesting article on the fate of the DOL’s fiduciary rule where MarketCounsel president and CEO Brian Hamburger predicted a Trump administration would move to repeal the DOL rule prior to it becoming effective in April 2017. The article also included a strongly-worded comment President-elect Trump’s economic advisor and founder of New York-based hedge fund firm SkyBridge Capital LLC Anthony Scaramucci made during a recent interview with the Financial Times. Of the pending fiduciary rule, he said, “We’ve got to get rid of this.” Note, too, that this comment came on the heels of his op-ed that appeared before the election in the Wall Street Journal with the headline: Your 401(k) Doesn’t Need a Federal Babysitter.

Hamburger believes that not only is the DOL rule history, but that some parts of the Dodd-Frank Act may also be under attack. Quoted in the article, he says, “The combination of a Donald Trump presidency and a Republican Congress will have an enormous impact on the momentum of the expansion of a fiduciary duty on those that give financial advice.” Hamburger went on to say that the provision that allows the SEC to implement a fiduciary duty on broker-dealers will either be repealed or that any existing rules will languish under newly appointed SEC commissioners.

If the regulation is to be repealed, how would it be done? Hamburger has suggested an act of Congress signed into law by the president could stop the DOL from making this rule effective. Alternatively, he says, Congress could pass legislation that would prevent the DOL from using any funds to implement the fiduciary rule.

However, the article also shares the views of other industry leaders who are more optimistic about the future of the DOL’s fiduciary rule. Skip Schweiss, managing director for advisor advocacy at TD Ameritrade, notes that the enforcement of the DOL rule would fall with the IRS, not the Department of Labor, thereby neutralizing the argument that the Labor Department must be funded for the rule to be enforced.

RIA Biz offers this analysis from Schweiss, “The DOL rule was finalized in April, and published in the Federal Register at that time. By law, Congress has 60 days to review any regulation and pass a bill overturning it before it goes into effect. Congress did that, and President Obama vetoed that bill, so the rule moved ahead and is final . . . you can’t just wave a magic wand and repeal it.”

Marcia Wagner, managing director of the Wagner Law Group in Boston, also does not think the DOL rule will be overturned. She tells RIA Biz, “Trump could issue an executive order saying he won’t enforce it. That’s different than repealing it, but it wouldn’t matter much because the best interest contract exemption has embedded in it the right to a private class action lawsuit. A new rule could be written, with the standards loosened, or the courts could overturn it, but it doesn’t look like that could happen for years . . . It will become effective April 10. The industry will have to comply.”

Which side will be proven correct? As we learned in the recent presidential election, polls may not be worth too much when it comes to predicting results! In my view, it is impossible not to agree that DOL fiduciary rule is a major step forward for our industry. Whatever your politics, it seems sensible that financial advisors should always act in their clients’ best interests. I will continue to report on this debate as it evolves.

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