Implications of Trump's Memorandum on Status of Fiduciary Rule
- President Donald Trump issued a memorandum on Feb. 3, 2017, directing the U.S. Department of Labor (DOL) to reconsider the Fiduciary Rule.
- Specifically, Trump directed the DOL to "examine the Fiduciary Duty Rule to determine whether it may adversely affect the ability of Americans to gain access to retirement information and financial advice."
- The investment and retirement industries are already anticipating that the Fiduciary Rule will either be completely withdrawn or entirely revised as a result of Trump's memorandum.
President Donald Trump issued a memorandum on Feb. 3, 2017, directing the U.S. Department of Labor (DOL) to reconsider the regulations that change the definitions of fiduciary and fiduciary advice. The regulations, collectively known as the Fiduciary Rule, were issued by the DOL in April 2016. Soon after the issuance of Trump's memorandum, acting U.S. Secretary of Labor Ed Hugler issued a statement that the DOL will consider the delay of the rule's applicability date, originally set for April 10, 2017.
Specifically, Trump's memorandum directs the DOL to "examine the Fiduciary Duty Rule to determine whether it may adversely affect the ability of Americans to gain access to retirement information and financial advice." According to the memorandum, the examination should include an economic and legal analysis considering whether the Fiduciary Rule 1) has harmed or is likely to harm investors due to a reduction in savings offerings, as well as related products, advice or information, 2) has resulted in disruptions within the retirement services industry that may adversely affect investors or retirees and 3) is likely to cause an increase in litigation and prices for retirement services for retirees. If the DOL determines that the Fiduciary Rule has resulted in or is likely to result in any of these points, or if the DOL finds that the Fiduciary Rule is inconsistent with Trump's priority "to empower Americans to make their own financial decisions," then Trump directs the DOL to publish a proposed rule rescinding or revising the Fiduciary Rule.
The delay, revision or repeal of the Fiduciary Rule was anticipated by the legal and financial industries to be one of the Trump Administration's early actions. A draft memo that circulated prior to the final version issued by Trump included a directive to the DOL to delay the Fiduciary Rule's applicability by six months and to consult with the U.S. Department of Justice to seek a stay of the litigation contesting the Fiduciary Rule. Neither of these directives were included in the final memorandum. Therefore, litigation contesting the Fiduciary Rule will continue.
Though not ultimately ordered to do so by Trump's memorandum, the DOL will likely have to instate a temporary delay of the Fiduciary Rule in order to fulfill the memorandum's directive. This delay itself, however, is problematic. Such a delay is likely subject to the notice and comment period of the formal rule-making process or would otherwise have to proceed in accordance with the "good cause" exemption to the Administrative Procedure Act.
If the Trump Administration or the DOL proposes modifications to the Fiduciary Rule, each revision will also be subject to the notice and comment requirements of the formal rule-making process. Given the anticipated time frame for the formal rule-making process, the investment and retirement industries are already anticipating that the current Fiduciary Rule will either be completely withdrawn or entirely revised as a result of Trump's memorandum.
The Fiduciary Rule defined who qualifies as a fiduciary investment adviser and set forth related prohibited transaction exemptions, as well as modified already established prohibited transaction class exemptions. In addition to defining a fiduciary, the Fiduciary Rule also described the kinds of communication that would rise to the level of "investment advice" and therefore warrant regulation under the rule.
For more information about the Fiduciary Rule, see Holland & Knight's alert, "DOL Releases Final Fiduciary Investment Adviser Regulations," April 8, 2016. A rescission or revision carries heavy implications for the investment and retirement sectors, as most major firms have already invested significant resources to research and establish procedures in accordance with the Fiduciary Rule.
Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.