Post-election speculation on the big changes coming to Washington has turned quickly to the Department of Labor’s (DOL) conflict of interest rule and whether the Trump administration would attempt to derail it.The bulk of this controversial regulation, which expands the definition of fiduciary investment advice under the Employee Retirement Income Security Act of 1974 (ERISA) to thousands of brokers and insurance producers, goes into effect on April 10, 2017.
Although there are differences of opinion on what will happen, in my view it will be tough to overturn a rule that technically went into effect June 7, 2016 (the compliance, or dates are April 10, 2017, for the definition and some exemptions, and January 1, 2018, for the remainder). Because the compliance deadlines go into effect next year, some are wondering whether the incoming Trump administration will attempt to change the rule, overturn it, or do nothing at all.
The odds are that vigorous efforts will be made to change it, both in Congress and at the new DOL. However, that doesn’t mean there will be significant changes, other than perhaps extensions of the compliance deadlines or a few modifications.
Here’s why, keeping in mind a few caveats:
First, separate from the election, federal courts in Kansas, Minnesota, and Texas are still reviewing legal challenges that would overturn or delay the new regulation. A federal district court in Washington, DC, dismissed a fourth lawsuit, but it may be appealed. However, most legal observers think the rule will survive.
Second, the current Congress (114th) will reconvene soon in Washington to take care of unfinished business. The major task awaiting Congress is to pass the fiscal year 2017 budget. However, the House appropriation bill for the DOL includes what is called a legislative “rider,” or amendment, that would prohibit the DOL from using any funds to implement the DOL rule. A similar effort failed in 2015 and this latest attempt is unlikely to succeed, either.
Of course, in the New Year we will see a new Congress and White House controlled by one party and firmly dedicated to reducing overall regulation. We still haven’t heard specifically what President-elect Trump thinks about the DOL rule, but it seems likely he will actively oppose it. During the campaign a Trump advisor said it should be overturned, and former SEC Commissioner Paul Atkins, who has reportedly been tapped as an advisor on the Trump transition team, testified last year before Congress that the DOL should go back to the drawing board.
That said, any action on overturning or delaying the rule isn’t likely to happen soon after the presidential inauguration. It will probably take several months or longer for the new administration and Congress to organize. President-elect Trump may not even have a Labor Secretary on board by April 10, 2017.
It’s also unlikely that the new administration could put the DOL rule on hold, because it technically was effective June 7, 2016. There are disagreements on whether the incoming administration could impose a moratorium on new Obama rules not yet effective, but this one will have been on the books for nearly eight months. Any administrative changes would have to go through the same kind of public comment process as the current rulemaking, and also would need to survive the inevitable administrative challenge in court.
Of course, the new Congress can start over and try and overturn the DOL rule through the legislative process, but this is often time-consuming, even if both houses of Congress are controlled by the same party. Senate Democrats, still smoldering over a lost opportunity to take control in the most recent election, are likely to vigorously oppose any efforts to repeal Dodd-Frank or the DOL rule. There’s also the question of whether the financial services industry would want to return to square one after spending millions of dollars to reconfigure compliance systems and products as we draw closer to the 2017 deadline.
Don’t confuse the recent headlines speculating an early death to the DOL rule next year with the political realities involved in doing anything in Congress outside of re-naming a post office. I think it’s more likely that efforts to overturn the rule by Congress will ultimately be frustrated, leaving the Trump White House to resort to less ambitious efforts to administratively broaden the safe harbors for conflicted advice or avoiding fiduciary status. It will be extremely difficult to roll back the rule in its entirety.
AIF®, is president and founder of Potomac Strategies, a Maryland-based non-partisan government relations firm specializing in federal representation before Congress, legislative tracking, policy analysis, and strategic communications and coalition development.