On February 3rd, President Trump signed a presidential memorandum directing the Department of Labor to conduct a new “economic and legal analysis” regarding the Fiduciary Rule. This analysis will explore issues such as whether the current rule will harm investors, disrupt the financial services industry, cause an increase in litigation, increase the price of financial advice, etc.
Because the Department of Labor falls within the scope of the executive branch of our government, President Trump has full constitutional authority to make this directive. This memorandum, however, neither delays nor kills the Fiduciary Rule. The Rule is still set to go into effect on April 10th until the Department of Labor says otherwise. Because the Rule is an administrative rule, it would need to go through the same administrative process in order to be repealed (i.e., proposal of a new rule to repeal the original rule, comment period and then the issuing of a final rule repealing the original rule). Trump cannot kill it. Congress cannot kill. Only the same administrative process that created it can kill it.
The good news is that Trump’s memorandum directs the Department of Labor to “publish for notice and comment a proposed rule rescinding or revising the Rule” if his Department of Labor’s new analysis finds that the original Fiduciary Rule is “inconsistent with the priority identified earlier in [the] memorandum” (i.e., “empower Americans to make their own financial decisions”). This will almost certainly be the case, but the question is when?
Another angle to be aware of is that the final lawsuit against the Department of Labor will be released this week. In a rare break of typical judicial procedure, the Judge in the federal court in Texas announced earlier this week (before Trump’s presidential memorandum) that she will be releasing her opinion next week. While Judges typically almost never announce when they will be issuing their final opinions, Judges are, however, cognizant of political footballs being tossed around in their courts. They would rather rule on the law –– not political or policy issues. Perhaps she signaled to the Trump administration to give her an out for her ruling next week. If that is indeed the case and she rules in the plaintiffs’ (our) favor, the easiest avenue to kill the rule would be for Trump’s Department of Justice to simply not appeal her ruling and “accept defeat.” If that is, in fact, the case, then it would be game over and victory for the financial community.
The “heart” of being independent is choice. We have opted to allow more choices than less as this rule is still being interpreted. Regal / Regulus have already announced that we are going to keep commission generating products available for client retirement portfolios. Additionally, our Fixed Index Annuity policy will be released shortly and will many in the industry will take note. We understand and respect the importance of you the Advisor as the primary educator of financial service products, services and concepts to the American people. We want to provide more choices while protecting all of us from compliance and litigation issues.
The new COMET interface will be released the beginning of March. Our firm, like the industry giants, LPL, Merrill Lynch and Morgan Stanley, is going to manage this mindset going forward for the benefit of our Advisors and your clients. Although we expect the DOL rule to change, the “horse is already out of the barn” and distribution is going to be changed in the industry. We will be prepared and prosper.
Mrs. Fraga will be sending out additional insight on the DOL rule and a compliance approved letter for use with your clients. Expect the delivery later today.
It is far from being over, but the “mud” is getting clearer. We appreciate your patience and affiliation as our government processes the implementation of the DOL rules.
John A. Kailunas II
Founder & CEO