What does the Presidential Memorandum mean for the DOL rule?

On February 3, President Trump signed a Presidential Memorandum[1] on the DOL’s fiduciary duty rule.

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The Memorandum requires the Secretary of Labor to determine whether the rule:

  1.  Has or is likely to “harm investors due to a reduction of Americans’ access to” various types of investment products and services;
  2. Has resulted in “dislocations or disruptions within the retirement services industry that may adversely affect investors or retirees”; and
  3. Is likely to cause an increase in litigation, and an increase in the prices … for retirement services.”

If the Secretary of Labor finds that the fiduciary rule is inconsistent with these considerations or with the Administration’s priorities of “empowering Americans to make their own financial decisions, to facilitate their ability to save for retirement and build … individual wealth…,” the Secretary is to publish a proposed rule rescinding or revising the fiduciary rule. 

Will there be a delay before April 10?

Contrary to many published reports, the Memorandum does not include a provision delaying the April 10 applicability date.  A draft version of the memorandum, which was circulated to journalists, attorneys and industry organizations, had included a 180-day delay to the April 10 applicability date.  However, the delay was apparently edited out of the final draft. 

Following the release of the Memorandum, Ed Hugler, the Acting Secretary of Labor, issued this statement:

The Department of Labor will now consider its legal options to delay the applicability date as we comply with the President’s memorandum.[2]

The avenues available to the DOL to delay the applicability date include: 

  • Issuing an interim final rule delaying the applicability date, and then going through the rulemaking process.  To do this, the rules of the Administrative Procedure Act (APA) require that the Administration has to demonstrate that this is not simply a change of policy and that the change is not “arbitrary or capricious”.  This appears to be a possibility (and, indeed, the Memorandum appears to be laying the groundwork for this).  However, there are only 66 days remaining before the April 10 applicability date, which is not a lot of time for the DOL to act.   
  • Eliminating the new fiduciary rules entirely before April 10.  This is not permitted under the APA without going through a months-long notice and comment process, unless the Administration can show “good cause.”  Given the short time frame, this appears to be unlikely.

In short, while the Trump Administration clearly wants to delay the April 10 deadline, it does not appear to be entirely clear on how to go about doing it.

What’s happening in the courts?

The fiduciary rule is being challenged by the U.S. Chamber of Commerce and others in a U.S. District Court in Texas.  Judge Barbara M.G. Lynn, who is presiding over the case, announced on February 1 that she would hand down a ruling by Friday, February 10. 

Other courts in Kansas and DC have rebuffed other challenges and permitted the fiduciary rule to go forward.  If Judge Lynn finds against the DOL, that could create a split among circuits that would likely result in a delay to the applicability date as the cases wind their way through the appeals process.

Some have floated the idea that President Trump could order the DOL to stop defending the court cases.  If that were to happen, parties opposing the rule could win by default.

Should firms keep planning for the April 10 applicability date?

NRS strongly recommends that firms should continue to develop plans for meeting the applicability date.  Even if the dates are delayed, it is entirely possible that a modified version of the fiduciary rule will go into effect.  Moreover, some of the requirements of the fiduciary rule are likely to be seen as best practices by FINRA and the SEC, and may find their way into the securities laws.

That said, firms should be careful about implementing the changes required by the fiduciary rule over the next few weeks, as delays or changes may happen rapidly.

 NRS suggests that a good rule of thumb is to develop plans for meeting the requirements of the applicability date that can be put into place within 30 days.  If the applicability date has not been delayed by March 10, and there is no clear indication that the applicability date will be delayed, then firms should begin implementing their plans.  If the applicability date is delayed, firms that have made plans for the new rule will be able to implement them quickly and efficiently (and make any needed modifications) should a new applicability date be announced.


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