White House memo confuses
Wall Street on fate of fiduciary rule
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[February 07, 2017]
By Sarah N. Lynch and Elizabeth Dilts
YORK (Reuters) - Conflicting signs from the White House have left
brokerage firms and lobbyists unsure whether a controversial rule
governing retirement advice will ever be put in place, but they are
taking no chances and complying anyway.
President Donald Trump's Friday memorandum ordered the Labor Department
to review the so-called "fiduciary" rule, which requires brokers to put
their clients' interests first when advising them about 401(k) plans or
individual retirement accounts.
But that call for a review was significantly weaker than an earlier
draft, seen by Reuters, that requested a 180-day delay in the scheduled
April 10 effective date of the rule, which is already on the books.
Trump's memo did not go as far as White House early guidance to
reporters that the memo would ask the department to "defer
implementation" of the rule.
It is not clear to Washington insiders just how quickly or easily the
Labor Department can delay implementation of the rule.
And while most expect there will eventually be a delay, it still is not
clear to Wall Streeters who have already started changing their business
models whether they can count on a deferral or reversal of the
“There’s confusion because it injected a whole lot more noise into the
system with very little specificity about what is to come,” said Michael
Spellacy, the head of PWC's wealth management consultancy, who said he
spent most of his weekend on the phone with the heads of 35 U.S.
brokerages they are advising discussing the memo and its implications.
Legal experts say the Labor Department likely will have to undertake a
formal rulemaking process in order to delay the rule's implementation -
a process that cannot happen overnight, and that may be further delayed
by the lack of a permanent Labor Secretary.
Trump's choice to be Labor Secretary, Andrew Puzder, has seen his own
confirmation indefinitely postponed in the Senate amidst delays with his
One other possible wrinkle that could impact the rule's implementation,
meanwhile, is a pending legal challenge in a federal court in Texas.
Last week, the judge said she plans to rule no later than Feb. 10.
The fiduciary rule is separate from the banking rules that were put in
place after the 2008 financial crisis. Trump has also ordered a review
of the 2010 Dodd-Frank reform.
EXPECTING A DELAY, BUT COMPLYING ANYWAY
In the meantime, lawyers are advising their financial services clients
to continue preparing for the upcoming deadline.
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Traders work on the floor
of the New York Stock Exchange (NYSE) in New York City, U.S.,
January 23, 2017. REUTERS/Brendan McDermid
is clear from the memo is that we don't have certainty yet," said Michael Kreps,
an attorney with the Groom Law Group.
White House did not explain why it scaled back its memo, but legal experts say
it was most likely changed because the prior version may have violated the
Administrative Procedures Act - a federal law that governs the rulemaking
That law requires public notice and a comment period before changes to a rule
can be made.
Had Trump proceeded with the original plan for a 180-day delay, the change could
have been vulnerable to legal challenges.
Legal experts say the Labor Department has a few possible options.
It can issue what is known as an "interim final rule," which would immediately
delay the effective date while seeking comments from the public on why a delay
Or, it can issue a proposed rulemaking to delay the rule's compliance deadline,
give the public 30 days to comment, and then issue a final rule.
A Labor Department spokeswoman reiterated on Monday that the department is
reviewing its legal options to delay the rule, but declined to elaborate.
Kenneth Laverriere, an attorney at Shearman & Sterling, said he fully expects
the rule to be delayed eventually, though it will come after companies have
already spent a lot of money to comply.
Three of the biggest U.S. brokerages, Bank of America Corp’s <BAC.N> Merrill
Lynch, Morgan Stanley <MS.N> and Wells Fargo Advisors <WFC.N>, said Friday’s
memo will not change compliance plans the firms already have in place.
Of those, Bank of America intends to adopt the most aggressive changes with its
plans to scrap selling brokerage IRA accounts starting in April.
"The genie is certainly out of the bottle," Laverriere said.
(Reporting by Sarah N. Lynch in Washington and Elizabeth Dilts in New York;
Additional reporting by Ayesha Rascoe in Washington; Editing by Linda Stern and
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