On Friday, February 3, 2017, the White House issued a memorandum to the Secretary of the Department of Labor ordering an updated economic and legal analysis.
Since the Department of Labor’s (DOL’s) “Conflict of Interest Rule” (the “Rule”) and related prohibited transaction exemptions were finalized in April 2016, many impacted organizations have expressed reservations about the timeline and the volume of complex work required in order to be compliant by April 10, 2017.
Due to concerns that the Rule “may significantly alter the manner in which Americans can receive financial advice, and may not be consistent with the policies of [the] Administration,”1 President Donald J. Trump issued a memorandum (the “Presidential Memorandum”) directing the DOL to examine the Rule to “determine whether it may adversely affect the ability of Americans to gain access to retirement information and financial advice.”
The memorandum does not directly delay or order a delay to the Rule’s applicability date, but it directs the DOL to prepare an “updated economic and legal analysis concerning the likely impact” of the Rule, which shall consider, among other things:
- Whether the anticipated applicability of the Rule “has harmed or is likely to harm investors due to a reduction of Americans’ access to certain retirement savings offerings, retirement product structures, retirement savings information, or related financial advice,”
- Whether the anticipated applicability of the Rule “has resulted in dislocations or disruptions” within the retirement services industry that may adversely affect investors or retirees, and
- Whether the Rule is “likely to cause an increase in litigation, and an increase in the prices that investors and retirees must pay to gain access to retirement services.”
If the DOL makes an affirmative determination pursuant to these considerations or if it concludes for any other reason that the Rule is inconsistent with the priorities outlined in the Presidential Memorandum, it is directed to publish a proposed rule to rescind or revise the Rule, as appropriate and consistent with law.
Although the Presidential Memorandum does not explicitly require the DOL to delay the April 10, 2017 applicability date as it conducts this review, DOL Acting Secretary Ed Hugler issued a statement following the White House announcing noting that the DOL “will now consider its legal options to delay the applicability date as we comply with the President’s memorandum.”2
What does this mean for the future of the rule?
Even if the DOL delays the applicability date, the Rule remains effective and the substance of it remains intact. Further delays, substantial changes to the Rule, or a repeal will likely require the DOL to initiate the full rulemaking process, including a public notice-and-comment period. The formal rulemaking process would also require substantial effort and time from the DOL that may be subject to litigation. It remains unclear whether the Presidential Memorandum is simply a standalone action or is the first indication that repealing the Rule is a priority for the Trump Administration.
Considerations for our clients
While the future of the DOL Fiduciary Rule remains unknown, it has already acted as an accelerant for industry trends toward greater transparency and alignment with customer needs. Given these trends and the uncertain impact of the directive to further study the impacts of the Rule, firms should continue to prioritize and implement the most crucial aspects of adhering to the DOL Fiduciary Rule, including:
Institutions that will be affected by the Rule may contact Deloitte with questions about the Rule and activities to support planning, preparation, implementation and compliance. Deloitte will continue to analyze the Presidential Memorandum and related developments, and will release a more detailed summary and point of view on industry and institutional implications as information becomes available.
1 The White House, “Presidential Memorandum on Fiduciary Duty Rule,” (February 3, 2017), available at https://www.whitehouse.gov/the-press-office/2017/02/03/presidential-memorandum-fiduciary-duty-rule.
2 Department of Labor, “US Department of Labor to Evaluate Fiduciary Rule,” (February 3, 2017), available at https://www.dol.gov/newsroom/releases/opa/opa20170203.