Will Trump Scuttle the Fiduciary Rule?

Will Trump Scuttle the Fiduciary Rule?

The “fiduciary rule” announced by the Labor Department in April, and due to come into effect next April, would hold broker-dealers to a fiduciary standard, meaning they must consider only their client’s best interest rather than their own commissions or fees, when giving advice about retirement savings plans. Opponents of the rule argue that it will hurt growth and make it more difficult for lower-income Americans to save for retirement; along those lines, the US Chamber of Commerce is urging president-elect Donald Trump to block the rule before it comes into effect, Politico reported on Tuesday.

The fiduciary rule is indeed one among many Obama administration regulations Trump could roll back, but he has not taken a firm position on it, as SHRM’s Stephen Miller pointed out shortly after November’s election. Earlier this month, Bloomberg’s Carol Hymowitz and Katherine Chiglinsky looked at what would happen if Trump decided to kill the rule:

Supporters of the fiduciary rule point to people changing jobs, or retiring and weighing a rollover from a 401(k) to an IRA, as among the most vulnerable to advisers putting themselves first. “That’s where the big money is,” said Barbara Roper, director of investor protection for the Consumer Federation of America in Washington, D.C. “And right now there’s a lot of incentive to encourage people to roll over even when they’d be better off staying” in a lower-cost 401(k) plan.

A postponement of the ruling under Trump would hurt middle-income retirement savers, Roper said. While wealthy investors tend to use financial advisers who already are considered fiduciaries, middle-income clients are likelier to get advice from nonfiduciaries, she said. “They’ll be back at the mercy of advisers who are compensated and rewarded for giving advice that’s harmful to their customers,” Roper said. Middle-income savers “are the people who can least afford this,” she added.

On the other hand, Robert Lawton at Employee Benefit News doubts Trump will bother to spend political capital blocking it:

A good case can be made that Trump will be too busy with more important matters to roll back the fiduciary regulations prior to their 2017 effective date. There is a cabinet to be staffed, a Supreme Court justice to be named, treaties to be voided and campaign promises to fulfill. One can imagine all sorts of lobbyists vying for time with President-elect Trump to share their ideas on how to make America great again.

Candidate Trump is not on record as having vowed to cancel the fiduciary regulations. In fact, there is nothing at all that he said while a candidate relative to the rules. It appears that the regs were not a major campaign agenda item.

In the meantime, it can be expected that existing staff at the DOL will continue to work on implementing the regs as drafted. Although DOL leadership is likely to be replaced, it is not a certainty that would happen in time to derail implementation. In addition, experts believe it is unlikely that the Trump administration would take office and immediately direct the DOL to halt the implementation process.

Perhaps because the future of this regulation remains uncertain, David Shadovitz at HRE Daily flags a recent survey of 401(k) plan sponsors showing that most are nervous about the possibility of fee-related litigation:

[L]itigation continues to be very much on the minds of plan sponsors. This fact received further support earlier this week, when Cerulli Associates, a global research and consulting firm, released the findings of a study—titled “The Cerulli Report: U.S. Retirement Markets 2016”—that found more than half (57 percent) of more than 800 401(k) plan sponsors questioned are concerned about potential litigation.

While much of the litigation has targeted large plans with deeper pockets, the research found that smaller plan sponsors are also paying attention to today’s litigious environment. Nearly one-quarter of small plan sponsors—those less than $100 million in 401(k) assets—describe themselves as “very concerned” about potential litigation.