A Fresh Look at DOL and Retirement Issues Under Trump

Now that the US election is over and a change in Washington is ahead, new policies are likely to come to fruition, and old ones may be revisited. Some of these policies may affect the investment landscape—and retirement. Some observers think the US Department of Labor’s (DOL) fiduciary rule enacted under the Obama administration—which expanded the scope of persons deemed to be a fiduciary—could be on the chopping block. Here, our Yaqub Ahmed and Michael Doshier break down their views of the potential implications of Donald Trump’s presidential win on this and other retirement-focused matters.

In an outcome that very few predicted, President-elect Donald Trump built a coalition of voters that outperformed polling and election models. Trump did so while offering very few policy prescriptions outside of his high-level pronouncements on key issues of immigration, national security and the economy. Overall, Democrats and the traditional Republican Party messages were both defeated by Trump’s populism movement, which resonated with potentially millions of Americans who had previously voted for President Obama’s campaign message of change in 2008. Underestimated in the primaries and the general election, Trump struck a chord with a large contingency of voters. While we don’t really know what’s to come in terms of financial and retirement-related policies on the horizon under the Trump administration, there is one issue that is already generating some buzz in terms of a possible repeal—the Department of Labor’s (DOL’s) fiduciary rule. While we’ve also consulted with Michael L. Hadley, Partner of Davis & Harman LLP, in preparing our analysis of the implications of a Trump presidency on the issue, the views expressed herein are our own.

Possible Path to Unwind Fiduciary Rule Comes into Focus

The intent of the DOL’s fiduciary rule, which becomes applicable in April 2017, is to protect consumers by ensuring financial advisors put their clients’ interests above their own financial interests. It has been over 40 years since the Employee Retirement Income Security Act of 1974 (ERISA) gave DOL authority to protect tax-preferred retirement savings, and the basic rules governing which activities trigger fiduciary status haven’t been meaningfully changed since. This is despite a dramatic shift in our private retirement system away from defined benefit (DB) plans and into defined contribution (DC) and self-directed Individual Retirement Accounts (IRAs). Since the rule reaches into the 401(k) rollover and IRA markets, it will have a very broad impact on most advisor/client relationships and will capture many types of interactions with retirement clients.

Many in the financial services industry who agree that advice should be in a client’s best interest but do not agree with the nuances of this rule—believing it may have unforeseen consequences—are now wondering what new paths exist to delay, modify or stop it. Some have suggested that Trump will overturn it, but others have said that doesn’t seem likely as Trump has other priorities and this issue was not a centerpiece of his campaign.