Trump Takes Aim at Fiduciary Rule, Financial Regulation

Trump Takes Aim at Fiduciary Rule, Financial Regulation

US President Donald Trump signed two executive orders on Friday: one ordering a review of regulations imposed on the financial sector under the Dodd-Frank Act of 2010, and the other ordering a review of the “fiduciary rule,” which requires financial advisors to act in their clients’ best interests when advising them about retirement, NPR reports:

These executive actions are the start of a Trump administration effort to reverse or revise financial regulations put in place by the Obama administration and seen by Trump and his advisers as onerous and ineffective. …

Echoing arguments of the financial services industry, the Trump administration official said the [fiduciary] rule would have unintended consequences if allowed to go forward. The industry says the rule will make it harder for advisers to serve lower-income clients. Backers of the rule say it will prevent advisers from gouging customers by selling them inappropriate, high-fee products. Once the review is complete, the official said, it’s possible the Labor Department could determine the rule is completely unnecessary.

The Trump team has had their sights on the fiduciary rule, drawn up by the Labor Department last April, for a while, and the business community had lobbied the president to rescind it. Friday’s order does not immediately cancel the rule, but gives the department the discretion to revise or discard it and prevents the rule from taking effect as scheduled on April 10.

A senior Trump administration official tells the Wall Street Journal that Friday’s orders are just the start of the administration’s deregulation agenda:

“Americans are going to have better choices and Americans are going to have better products because we’re not going to burden the banks with literally hundreds of billions of dollars of regulatory costs every year,” White House National Economic Council Director Gary Cohn said in an interview with The Wall Street Journal. “The banks are going to be able to price product more efficiently and more effectively to consumers.” …

Mr. Cohn said the actions are intended to pave the way for additional orders that would affect the post-crisis Financial Stability Oversight Council, the mechanism for winding down a giant faltering financial company, and the way the government supervises big financial firms that aren’t traditional banks, often referred to as systemically important financial institutions.

Even if the fiduciary rule is scuttled, however, the changes the financial industry has already made to comply with it are likely to remain in place, Business Insider explains:

For all the concerns about what Trump could do to the rule, it might actually be too late for him to do much to undercut the change. That’s because Wall Street firms have already made the move to comply with the new standard, creating an industry shift unlikely to bend even in a worst-case scenario, experts say.

“Pragmatically, it’s very difficult to step back from a rule that’s so obviously needed,” Jack Bogle, founder of the index provider Vanguard Group, which is known for its low-cost offerings and is likely to benefit from the change, previously told Business Insider.

Bloomberg observes the same trend:

Morgan Stanley, one of the biggest U.S. brokerages, said on Jan. 26 that it plans to move ahead with changes designed to comply with the fiduciary rule, despite uncertainty over whether the regulation will be implemented. Insurers including American International Group Inc. and Principal Financial Group Inc. stressed after Trump’s victory that they would continue to forge ahead as though the rules would be carried out.

“My expectation is that a lot of firms are going to continue installing a best-interest standard, regardless,” said Brian Graff, chief executive officer of the American Retirement Association, a group that represents pension professionals.