As things currently stand, a financial adviser helping a retiree pick investments doesn’t have to put the retiree’s interests first. Instead, the adviser can steer his client toward products that make him money but that might not be the smartest investment choice. This conflicted advice has been estimated to cost Americans $17 billion a year.
The Obama administration took action to change the rules so that advisers have to put retirees’ interests ahead of their own, otherwise known as the fiduciary duty rule. The new rules were set to go into effect this month. But now, the Trump administration is taking steps to whittle them down or do away with them altogether, allowing advisers to continue pushing clients into costly investment choices.
On Tuesday evening, the administration officially delayed the implementation of the new rules by 60 days, pushing one part of it back to June and the rest of it to January 2018.
In February, President Trump signed an executive order instructing the Department of Labor, which issued the original rules, to consider revising or rescinding them. In its announcement of the delay this week, the department said the move will allow it to examine whether the rules “may adversely affect the ability of Americans to gain access to retirement information and financial advice” and to “consider possible changes.”
These are all steps toward dismantling the rule. “We want them to cease the implementation of this and completely review the fiduciary rule,” a senior White House official told Time in February. “We think that this was a complete miss on what [the Obama administration] were trying to do. It has taken away a huge variety of investment options for individual investors.”
But it’s not going to be as easy as a sweep of Trump’s pen. According to the Administrative Procedure Act, any rule interpreting or implementing a policy must go through a public comment period.
“To start to roll back something that already went through a considerable deliberative process is going to take time,” said Chris Lu, former deputy secretary at the Department of Labor under President Obama.
On top of that, the administration will need to prove that something significant enough has changed since the Obama administration issued the final rules to vindicate undoing them. “They’re going to have to justify any changes they make. That’s not always the easiest thing to do,” he said. “You can’t just undo regulations, you actually have to have a justification for doing it.”
Before issuing the final rules last year, the Department of Labor held four days of hearings and 100 stakeholder meetings and fielded thousands of public comments. It then prepared a 382-page cost-benefit analysis of the expected impact.
“We went through an exhaustive notice and comment period,” Lu said. “We looked at the comments and made a considered decision about how we should craft the rule.” After the comment period, the department made some changes and clarifications that included exemptions and phase in periods.
To reverse that progress, the Trump administration will have to field comments, which are likely to be about the same as before, and say the outcome has changed. “They’re going to be looking at the exact same facts that are presented to them and have to justify a completely different decision,” Lu said. Just saying that administrations changed parties isn’t enough.