A new president and fiduciary: What happens next?

November 7, 2016 12:28 PM

It took several years for the Department of Labor's fiduciary rule to come to fruition. But with a new president coming into office in January, could all that work be unraveled?

Predictably, experts clash on what the impact of either a Trump or Clinton win will mean for the fiduciary rule before it is slated to go into effect on April 10. Some believe that the presidential election's effect on its implementation could extend far beyond the rule's technical boundaries to Dodd-Frank regulation — as well as to all non-retirement accounts. If that's the case, non-qualified accounts could experience as profound a revolution as the one currently anticipated for retirement accounts.

Read on for more predictions.

It took several years for the Department of Labor's fiduciary rule to come to fruition. But with a new president coming into office in January, could all that work be unraveled?

Predictably, experts clash on what the impact of either a Trump or Clinton win will mean for the fiduciary rule before it is slated to go into effect on April 10. Some believe that the presidential election's effect on its implementation could extend far beyond the rule's technical boundaries to Dodd-Frank regulation — as well as to all non-retirement accounts. If that's the case, non-qualified accounts could come in for as profound a revolution as the one currently anticipated for retirement accounts.

Read on for more predictions.

Bob Carr

Program Manager
Central Bank
Jefferson City, Missouri

I seriously doubt that a Trump victory will impact the implementation of the fiduciary rule.

The industry has spent millions of dollars gearing up to help advisers meet their fiduciary responsibilities under the DoL [rule]. The largest firms have already started to institute changes as [they relate] to smaller IRA clients. So my opinion is that the industry, led by the big brokerage firms and large bank programs, would not be leading the charge to reverse [the rule].

I also think it would be political suicide to fight to have it reversed. If it benefits the customer by having commissions reduced and conflicts of interest eliminated, I suspect [the rule] will move forward as planned on April 10, 2017. Politicians will not likely want to face the negative public outcry that would certainly happen if politicians tried to reverse course after the election.

To those of us who manage programs, I’m more concerned about how long this impacts the qualified money investor. The large firms seem to already be making changes to implement only one process for both qualified and non-qualified opportunities starting in April. This makes me think that, in 2018, we will be likely looking at the fiduciary rule impacting all of our business.

Mark Tibergien

CEO
Pershing Advisor Solutions

I expect a Clinton presidency will be a continuation of President Obama's policies and priorities for the most part. In this, in combination with the negative perception of financial services in general and Wall Street in particular, I would expect no change. There's no upside for her to oppose Bernie Sanders and Elizabeth Warren by risking the damage created through headlines that would say she doesn't have the "best interest" of Main Street in mind, if she were to reject the rule. Besides, I think she would be going into Washington with a desire to find common ground not picking fights, especially after this brutal campaign.

On the other hand, a Trump presidency could be interesting, but I expect more words than actions. Some of his talking heads have indicated that a President Trump would stop this regulation as well as all new regulations. As an outsider, he may not appreciate that it takes new regulations to change or trim back existing ones. On the one hand, I can't imagine this would be high on his list of priorities either. Given the short window of time from inauguration to April 10th, it is hard to imagine any change during that time. However, the administration could delay implementation. The industry would already be well on its way toward compliance and so might not be as impactful as a result.

Unwinding the regulation would require a new rule making process and I don't see either administration taking that on. And, personally, I'm hoping for a little peace and quiet for a while.

Elizabeth McCourt

President
McCourt Leadership Group
Westhampton Beach, New York

If there were a remedy for election fatigue, aside from the election itself, there are not too many people who would refuse it. Combine the election with the fiduciary rule's execution within the first 90 days of a new presidency and the fatigue could turn into a full-blown ulcer for some. However, the political strategies of each candidate, if elected, may not be as different as a client might think when applied to the fiduciary rule.

In a Trump presidency, it’s been said that he would work to eliminate the rule, although he’s never said this himself. With priorities like Obamacare and immigration reform, the fiduciary rule may very well take a back seat. The notion that the very high-end advisers who are fee-based will not be affected, leads one to believe that Trump might take a wait-and-see approach to the rule, especially because he was not involved nor might he be affected by it. Furthermore, understanding that firms have already spent millions of dollars in preparation of the rule going into effect, to attempt a sweeping change, with a cooperative Congress of course, may seem less attractive than other priorities.

With a Clinton presidency, the rule is expected to continue as planned. Clinton has always implicitly endorsed the regulation and sides with Sen. Elizabeth Warren on wanting to protect clients from both excessive fees and fiduciary decisions not made in their best interest. Based on her history as a supporter of Dodd-Frank after the financial crisis, we can expect no tweak or change with the rule’s execution.

Mark Elzweig

Recruiter
New York

The consequences of this election for advisers will be dramatic, far-reaching and long-lasting.

A Labor Department staffed by Trump appointees would likely be comprised of industry people with business experience, not career civil servants or lawyers who are hostile to brokerage firms and advisers. I doubt that a Trump DoL would attempt to dictate recruiting policies or interfere with a firm's ability to structure its own payout grids. Their worldview would be more that regulators should, of course, protect consumers from unscrupulous behavior, and that, otherwise, regulators should get out of the way. They should not micromanage the industry and let firms call their own shots. Of course, Trump's unpredictability could change all this.

Hillary Clinton has come out strongly in favor of the fiduciary standard. If she's elected, her DoL will continue the same policies. She may even reappoint the same people that are there now. If a vacancy occurs on the SEC, she'll appoint like-minded commissioners. Therefore, the regulatory path that the industry is on now will be all but set in stone and very difficult to reverse. That is: fee-based business is good, commission business is highly suspicious and in many cases a downright rip-off for customers. Back-end bonuses that are tied to performance objectives are a conflict and encourage unethical adviser behavior. With this worldview as the starting point, new and expanded regulatory mandates will no doubt appear.

LILA PHOTO/© LILA PHOTO

Skip Schweiss

President, TD Ameritrade Trust
Managing Director, Advisor Advocacy and Industry Affairs
TD Ameritrade Institutional

We anticipate no changes to the Department of Labor's rule based upon the upcoming elections. The rule has been published in the Federal Register and is, thus, final, effective April of next year. The DoL was considerate enough to give us all a year to comply, but that doesn't mean the next president can simply stop the rule.

We acknowledge the various lawsuits being initiated in the courts against the new rule, but those could take years to work their way through the system. In the interim, we do not foresee a court granting an injunction stopping the rule.

Considering the various efforts to stop implementation of the rule, including a new president in early 2017, we anticipate the rule will take effect on April 10 and that all providers of recommendations to retirement investors under the rule should plan their compliance activities accordingly.

Jamie McLaughlin

Principal
J.H. McLaughlin & Co.
Darien, Connecticut

The fiduciary issue has somehow been conflated with normative political fault lines: opponents support free, unfettered capital markets and a smaller government, while proponents support consumer protection in the name of protecting the little guy.

Predictably, a fiduciary standard is dismissed as "consumerism" and regulatory overreach by many influential Republicans but this frame of reference is superficial.
The broader issue is much deeper and largely rests on the duty of an agent to avoid conflicts of interests or the temptation of a potential conflict of interest when representing another party's interests. When we apply agency theory to financial advice one reaches a simple interpretation - any adviser has a duty to disclaim and disclose all conflicts. Apparently, this simple principle might undermine the manufacturing and distribution complex who have lobbied vigorously against any change.

Should we expect the election will change this? Perhaps. In time, we might expect a Republican Administration to propose changes to dismantle the DoL regulation, but there will be much bigger issues for the new Administration and 115th Congress to focus on. Should Clinton prevail, we might see a broadening of the standard to level the playing field beyond simply retirement plans.

Dave Yeske

Managing Director
Yeskie Buie
San Francisco

First, these kinds of rules and regulations are not easily changed, so the fact that the Labor Department has developed and rolled out this rule [means it] is going to be hard to undo.

Second, the public and media awareness is so much higher than it’s ever been before. I’ve had calls and emails from clients about this unlike any other public policy issue ever. I’ve literally had a client call and ask, “Are you a fiduciary?” … That’s powerful.

Third, the next president and members of both chambers of Congress are unlikely to be all of one party, which suggests that the status quo is the order of the day. Therefore, the fiduciary rule is likely to persist.

John Bragg

Elaine Bedel

CEO and President
Bedel Financial Consulting
Indianapolis, Indiana

Regardless of who wins the presidential election, in my opinion, it is likely not going to impact the progress of the DoL’s fiduciary rule.

Even though Mr. Trump has indicated he would halt all regulations, this particular legislation may be too far down the road to be considered. The bigger question is what the SEC under Mary White’s leadership may do and whether such a reach would be supported by a new President. She has indicated that the fiduciary standard of care should be expanded beyond retirement accounts. Another reason the fiduciary rule is likely to continue on its path is that it would be politically risky for a sitting President to oppose a rule that has been promoted as “protecting the small investor."

Colin Conces Photography

Jack Holmes

Chief Investment Officer
Feltz WealthPLAN Partners
Omaha, Nebraska

Obviously a Clinton election victory would be status quo. She's been a big supporter of the rule. I don't expect any other change if she's elected. Trump is a wild card because he hasn't commented on the rule, but one of his big advisers Anthony Scaramucci has said it must be appealed. I think the rule is not going to change if Hilary is elected and the outcome is less certain with Trump.

I think the fiduciary rule, while it has good intentions, is a little bit misplaced in terms of some of the ramifications that are a part of it. I think net-net it isn't beneficial to the advisory community. It's going to be difficult for a lot of guys to migrate their business that way. We've been fortunate in having gotten ahead of this. Other guys, not so much.

Michael King

Recruiter
New York

If Clinton wins, you'll see a continuation of the rules and a further update to Dodd-Frank [regulation]. A Clinton administration would look at the regulations and try to update them based upon the experience of the last eight years. If Trump wins, you'll see relaxation of rules in all areas including a weakening of Dodd-Frank as well as the fiduciary rule. Trump believes in less regulation in most business areas. Whether his business experience translates into government policy remains to be seen.

The question is, what is best for the country. That is the ultimate decision all voters must make both in business and personally.