Despite an initial 60-day delay from the Trump administration, the Department of Labor’s fiduciary rule now nears its June 9th effective date. The rule requires financial advisers to give advice in the best interests of their clients when giving advice about retirement accounts. With just eighteen days to go, it seems increasingly likely that the rule may actually go into effect.
Some legislative and administrative risks remain for the rule. The U.S. House of Representatives seems likely to pass the Financial CHOICE Act of 2017 in the near future. It spans about six hundred pages and seeks to unwind many of Dodd-Frank’s reforms and, among other things, repeal Labor’s fiduciary rule. The legislation has been widely criticized and may fare poorly in the Senate. Earlier today, John Coffee memorably described it as something “drafted by the staff of a libertarian think tank . . . after they had all smoked something very strong.” Given the strong opposition to the CHOICE Act, a legislative repeal appears unlikely before June 9th.
The fiduciary rule still faces administrative risks. President Trump issued a memorandum directing Labor to review the fiduciary regulation. In response, Labor delayed the rule by 60 days to conduct its review. The “review” may be mere pretext for rescinding the regulation. According to one report, the new Secretary of Labor Alexander Acosta has begun casting about for a way to “freeze” the fiduciary rule in a way that will “stick” as his top priority. These reports have drawn harsh criticism from Democratic Senators questioning whether Secretary Acosta “prejudged the outcome of the review.” If Labor moves to delay the rule again, consumer protection groups seem likely to challenge the decision in court.
As the clock ticks down, it will be interesting to see what justification Labor might trot out to block its own rule or whether it will allow the rule to go into effect.
Posted by Benjamin P. Edwards on May 22, 2017 at 08:29 PM