On February 3, 2017, President Donald Trump signed a presidential memorandum addressing the Department of Labor’s (“DOL”) so-called fiduciary rule that will go into effect on April 10, 2017. Early media reports on February 2 and 3 indicated that the president would delay or suspend the rule. However, he did neither. The presidential memorandum directs the DOL to review the fiduciary rule to determine “whether it may adversely affect the ability of Americans to gain access to retirement information and financial advice.”
The fiduciary rule redefines who a fiduciary is with respect to retirement plans as well as IRAs and other retirement related investments. The new rule expands the individuals who will be considered to be fiduciaries under retirement plans and IRAs. Fiduciaries are required to act in the best interests of their retirement plan or IRA customers and not themselves. The fiduciary standard to which investment advisors are held under the rule is a much higher standard than existed prior to the final DOL fiduciary rule. While the details of the fiduciary rule are beyond the scope of this article, it suffices to say that the final rule is revolutionary for much of the retirement plan investment industry.
The DOL is required under the presidential memorandum to prepare an updated economic and legal analysis of the impact of rule. That analysis must consider whether the rule:
- Has harmed or is likely to harm investors by reducing access to retirement savings offerings, retirement products, retirement savings information or related financial advice;
- Has resulted in dislocation or disruptions within the retirement services industry adversely affecting investors or retirees; or
- Is likely to cause an increase in litigation and increase prices for retirement services.
The DOL is also required to publish a notice and a comment rescinding or revising the fiduciary rule if the DOL determines that any of these considerations will result or if the DOL determines that the fiduciary rule is inconsistent with the priorities of the Trump administration to empower Americans to make their own financial decisions and save for retirement.
What is a presidential memorandum? A presidential memorandum is one of many devices that the president may use to discharge his responsibilities. A presidential memorandum has a similar legal effect to an executive order. Executive orders are required to cite the authority the president has to issue them. However, presidential memoranda are not. Congress has required the White House Office of Management and Budget to report the projected cost of all executive orders. Presidential memoranda are not covered by the requirement to report their cost unless the regulatory cost would exceed $100 million.
Following the publication of the presidential memorandum, Ed Hugler, acting U.S. Secretary of Labor, issued a statement that said:
“The Department of Labor will now consider its legal options to delay the applicability date as we comply with the President’s memorandum.”
What does all this mean? The fiduciary rule clearly has not as yet been delayed, repealed, suspended or rescinded. While the path forward is not clear, the effective date of the final fiduciary rule is April 10, 2017, not a long way off. Presumedly, the DOL will act on or before this date. Many investment companies and organizations have already converted their products and operations to accommodate the fiduciary rule. Some, especially smaller advisors, have delayed and may well get a reprieve from the DOL. Those who have already converted have already committed significant time, money and education to convert their operations to be consistent with the fiduciary rule. Many of those service providers indicate they will comply with the fiduciary rule regardless of what the DOL does.
If you have questions about the fiduciary rule or its disposition, contact Bill Roberts at ebplans@hallrender.com or your regular Hall Render attorney.
