Here are some important observations from my partner, Fran Goins, on two missives President Trump issued on Friday that you should know about.  My own politics have made themselves pretty clear in recent posts, so it’s good to have someone comment on these presidential pronouncements without the snarkiness I would have undoubtedly injected, wittingly or otherwise.  – Alan

On February 3, 2017, President Trump signed a memorandum addressed to the Secretary of Labor directing that the Conflict of Interest Rule Retirement Investment Advice, 81 Fed. Reg. 20946 (April 8, 2016) (the “DOL Fiduciary Rule” or “Fiduciary Rule”) be examined “to determine whether it may adversely affect the ability of Americans to gain access to retirement information and financial advice.”  (See full text here.)  Acting Labor Secretary Ed Hugler promptly issued a statement indicating that the DOL would “consider its legal options to delay the applicability” of the Fiduciary Rule, currently set to take effect on April 10, 2017.  

Contrary to initial reports based on an earlier draft, the President’s memorandum itself did not delay implementation of the Fiduciary Rule for 180 days – or at all – possibly since such action would likely have been open to challenge as a violation of the Administrative Procedure Act, although it will likely have that impact.  The memorandum instructs that if the DOL affirmatively determines that the Fiduciary Rule in its present form “is likely to harm investors,” “has resulted in dislocations or disruptions within the retirement services industry that may adversely affect investors or retirees,” or “is likely to cause an increase in litigation” or the prices of retirement services, the Secretary is to “publish for notice and comment a proposed rule rescinding or revising the [Fiduciary] Rule.”  Interestingly, the memorandum does not explicitly instruct the DOL to seek a  delay in the applicability of the Fiduciary Rule, although White House National Economic Council Director Gary Cohn told the Wall Street Journal that, “We think it is a bad rule. It is a bad rule for consumers.” 

An open question remains as to what the DOL will determine about the issues it is instructed to examine (all of which were exhaustively reviewed in some form or other in connection with the determination leading to adoption of the Rule in its current form), although it seems likely that any examination now would arrive at affirmative findings on the issues presented in the memorandum.  Meanwhile, consumer groups have threatened legal action to preserve the Fiduciary Rule in its present form.  The message for financial institutions that were gearing up to comply with the Fiduciary Rule is far from clear, but a conservative approach would seem to dictate that such efforts continue, at least until there is more certainty with respect to the DOL’s direction.

Also on Friday, the President issued an executive order setting out his “Core Principles” on financial regulation.  (See full text here.)  The order instructs the Secretary of the Treasury to consult with the Financial Stability Oversight Council and report back within 120 days and periodically thereafter on the “extent to which existing laws, treaties, regulations, guidance, reporting and recordkeeping requirements, and other Government policies promote the Core Principles” with particular attention to such policies that “inhibit Federal regulation of the United States financial system in a manner consistent with the Core Principles.”  The Core Principles favor independence in financial investing, economic growth, prevention of taxpayer-funded bailouts, competition, preservation of American interests in international financial negotiations, and restoration of public accountability.  Ironically, many of these are the same principles the Dodd-Frank Act aimed to strengthen.

While widely touted as the first step to repealing the Dodd-Frank Act, the wording of this executive order is so ambiguous that it is difficult to fathom how it will be implemented or what effect the first report in 120 days (assuming no extensions) may have on the financial regulatory system.  While the order will likely stymie any further rule-making under the Act for the time being, financial institutions would be reckless to assume that any existing regulation would not be enforced while this plays out.