On February 3, 2017, President Trump directed the Department of Labor (“DOL”) to review the fiduciary rule adopted in April 2016 (the “Fiduciary Duty Rule”) and consider whether the Fiduciary Duty Rule should be modified or rescinded. The President’s order instructed the DOL to consider whether the Fiduciary Duty Rule would:
- Harm investors’ access to financial advice and certain retirement products;
- Disrupt the retirement services industry in a manner that would adversely affect investors; and
- Cause an increase in litigation or the prices investors would pay to gain access to retirement services.
If, after completing this review, the DOL concludes that it would adversely affect investors, then it is directed to publish for notice and comment a rule rescinding or revising the Fiduciary Duty Rule.
The focus of the analysis set forth in the President’s order, as well as a number of statements made by senior Administration officials, suggests that, after completing its review, the DOL will propose revocation or major changes to the Fiduciary Duty Rule. Because the Fiduciary Duty Rule is already effective, any changes by the DOL must be made in compliance with the Administrative Procedure Act (“APA”).
The President did not direct the DOL to delay the April 10, 2017 implementation date of the Fiduciary Duty Rule. However, a delay seems likely in order to enable the DOL to complete the analysis ordered by the President, as well as to provide time for the DOL to proceed with rulemaking to rescind or amend the Fiduciary Duty Rule should it conclude that such action would be appropriate. We assume that the DOL will seek to delay the implementation date by invoking the “good cause” exception in the APA, which permits agencies for “good cause” to act without going through the full notice and comment process otherwise applicable under the APA. “Good cause” is not defined, and invocation of “good cause” by the DOL could be subject to judicial challenge. While the outcome of any legal challenge cannot be predicted, it may be more difficult to challenge a “good cause” determination that delays implementation of a rule, as compared to challenging a “good cause” determination that is used to bypass APA procedures for adoption of a new rule.
Assuming the implementation date is successfully delayed, the future of the Fiduciary Duty Rule may not be clear until the latter part of 2017 at the earliest. Irrespective of actions by the DOL, many firms may choose to continue with their plans to adopt a fiduciary standard that would require them to act in the best interest of their customers.