On February 3, 2017 President Trump signed an Executive Order regarding the Core Principles his administration will use to oversee financial regulations. He also issued a Memorandum to the Department of Labor (DOL) ordering a review of the impacts of the DOL Fiduciary Rule.
While these Orders/Memorandums further indicate the President’s intentions to loosen regulations for financial services firms, they do not explicitly dismantle any parts of Dodd-Frank or the DOL Fiduciary Rule, nor do they extend the effective implementation date (April 10, 2017) of the DOL Fiduciary Rule.
In the Executive Order, six Core Principles were identified to gauge the effectiveness of regulations. The principles cover economic growth, integrity of the financial markets and the ability for Americans to make informed investment and savings decisions. The Secretary of the Treasury will work with the heads of the member agencies of the Financial Stability Oversight Council to provide a report to the President within 120 days of the date of this order (June 3, 2017) which will cover what actions have been taken or are currently being taken to promote and support the Core Principles and identify any laws, treaties, regulations, guidance, reporting and recordkeeping requirements, and other Government policies that inhibit Federal regulation of the United States financial system in a manner consistent with the Core Principles. Although there is much discussion about the Order’s effect on Dodd-Frank, it does not limit the review to only Dodd-Frank. The Order requires the Secretary of Treasury to work with various agencies to review all items that impact the regulation of the financial markets in totality.
A key member of the FSOC is the Chairman of the Securities Exchange Commission. Under Section 913 of Title IX of Dodd-Frank, the SEC created a report of gaps of regulations of Broker Dealers and Investment Advisors when providing personal investment advice to an investor. Under Section 913(g) of the Act, the SEC can implement changes to bridge gaps in regulations. The changes would cover all investment accounts, while the DOL Fiduciary Rule only covers retirement accounts.
The President specifically addresses the DOL Fiduciary Rule in a separate memorandum, yet ties back to the President’s Core Principles of regulation, such as:
- empower Americans to make independent financial decisions and informed choices in the marketplace, save for retirement, and build individual wealth
- restore public accountability within Federal financial regulatory agencies and rationalize the Federal financial regulatory framework
The Secretary of Labor is directed to examine the Fiduciary Duty Rule to determine whether it may adversely affect the ability of Americans to gain access to retirement information and financial advice. As part of this examination, the DOL shall prepare an updated economic and legal analysis reviewing the impact to retirement investors, retirees and the retirement industry.
If the DOL determines that the current Fiduciary Rule is not consistent with the stated principles of the Trump Administration, they are directed to publish a proposed new rule for public comment and review.
Effectively, the industry is in a state of uncertainty as to what can be legally finalized to change or replace Dodd-Frank and the DOL Fiduciary rule and when changes will/can be enacted. The administration and agencies are also working with interim Secretaries of Treasury and Labor (as of Feb 6, 2017), which could limit the speed at which the reviews and recommendations take place.
So, how are firms reacting to the Executive directives and uncertainties? Most firms and advisors are staying the course with Dodd-Frank and moving forward with the implementing the Fiduciary Rule. Morgan Stanley, Merrill Lynch, LPL and others have been vocal about their intentions to fulfill on the fiduciary standard. At this point, the “train has already left the station”. North Highland believes that this time of uncertainty presents an opportunity for companies to examine operations to better understand their business and address challenges with an eye toward Customer Experience and Performance Improvement. While companies should still continue to take steps to comply with the DOL Fiduciary Rule, it should not be seen only as a regulatory requirement, but as a way to enhance their value proposition in an increasingly commoditized industry.
For additional guidance and insights on the DOL Fiduciary Rule, visit North Highland’s Fiduciary Foundations website.