Trump to Halt Obama Fiduciary Rule, Order Review of Dodd-Frank

By Justin Sink, Elizabeth Dexheimer and Katherine Chiglinsky, Bloomberg News–

President Donald Trump will halt an Obama administration regulation, hated by the financial industry, that requires retirement advisers to work in the best interests of their clients, while the new administration reviews the rule.

The president also will order a review of Dodd-Frank Act rules enacted in response to the 2008 financial crisis, a White House official said. Trump is scheduled to issue the directives at a signing ceremony around noon on Friday following a meeting of more than a dozen top corporate executives led by Blackstone Group LP Chief Executive Officer Steve Schwarzman.

Trump’s directive stalls the so-called fiduciary rule — set to take effect in April — that the Obama administration said would protect millions of retirees from being steered into inappropriate high-cost or high-risk investments that generate bigger profits for brokers.

The two executive actions are designed to lay out the Trump administration’s approach to financial markets, with an emphasis on removing regulatory burdens and opening up investor options, said the White House official, who briefed reporters on condition of anonymity.

The orders are the most aggressive steps yet by Trump to loosen regulations in the financial services industry and come after he has sought to stock his administration with veterans of the industry in key positions. His plans are sure to face fierce criticism by Democrats who charge that Trump is intent on undoing changes designed to protect everything from average investors to the global banking system.

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Cordray’s Future

The review will include examining making personnel changes at financial regulators as a way of accomplishing the administration’s objectives, the official said, though he declined to answer a question on whether Trump would try to fire Richard Cordray, the director of the Consumer Financial Protection Bureau. The official did say the administration believed that some of the rules created under Dodd-Frank may have been unconstitutional, including the creation of new agencies, an apparent reference to the bureau.

Asked Monday about whether Trump would retain Cordray in his position, White House press secretary Sean Spicer declined to answer. Steven Mnuchin, Trump’s nominee to serve as Treasury secretary, said during his congressional testimony that he believed the CFPB as a whole should be preserved but that Congress should take more direct control of its budget.

The Trump administration doesn’t believe Dodd-Frank measures, including the Volcker Rule limits on banks making speculative bets with their own funds, addressed real issues in the financial system, the official said. The president’s team also believes the Labor Department fiduciary rule was unnecessarily restricting investor choice without providing necessary consumer protection, the official said.

Republican Objections

Republican lawmakers and some financial firms say the fiduciary rule is deeply flawed, arguing that it will restrict options for consumers and result in some savers being denied advice on their retirements. Trump will call for the Labor Department to stop and review the regulation in its entirety.

While the review will be undertaken independently by the Labor Department, the White House aide signaled that the president was expecting significant change.

Delaying implementation of the Labor Department rule is the first step Republicans and the finance industry are eyeing as part of a broader overhaul of the measure. GOP Lawmakers have argued that the Securities and Exchange Commission, not the Labor Department, should oversee and regulate any changes related to financial firms.

Banks, asset managers and insurers have been fighting the fiduciary rule ever since the Labor Department approved it last year, saying the regulation could raise the costs of providing advice and make it harder to serve lower-income clients. Business groups including the U.S. Chamber of Commerce and American Council of Life Insurers have sued to try to block it.

Moving Ahead

Still, representatives of some financial services companies said they planned to change practices to meet the regulation’s standard even if it is halted.

“We plan to go forward with the majority of the work we’ve done,” Bill Morrissey, managing director of business development at LPL Financial Holdings Inc., said in an interview before Trump’s order was disclosed. “What investors want is more transparency and lower fees.”

Morgan Stanley, one of the biggest U.S. brokerages, said on Jan. 26 that it plans to move ahead with changes designed to comply with the rule, despite uncertainty over whether the regulation will be implemented. Insurers including American International Group Inc. and Principal Financial Group Inc. stressed after Trump’s victory that they would continue to forge ahead as though the rules would be carried out.

“My expectation is that a lot of firms are going to continue installing a best-interest standard, regardless,” said Brian Graff, chief executive officer of the American Retirement Association, a group that represents pension administrators and plan advisers.

Big Number

Separately, Trump will order a review of the Dodd-Frank Act, which he on Monday promised to do “a big number” on during a meeting with small business owners. Trump said the law had damaged the country’s “entrepreneurial spirit” and limited access to needed credit.

“Regulation has actually been horrible for big business, but it’s been worse for small business,” the president said. “Dodd-Frank is a disaster.”

The incoming Treasury secretary will meet with members of the Financial Stability Oversight Council and report back on what changes the administration should take to alter Dodd-Frank, the official said. Particular attention will be paid to the Volcker Rule, which was promoted by former Federal Reserve Chairman Paul Volcker.

The official wouldn’t say how long the Treasury Department would have to complete its review, but did say that the administration would be looking for ways to make an immediate impact, including through administrative changes and personnel decisions.

–With assistance from Zeke Faux To contact the reporters on this story: Justin Sink in Washington at jsink1@bloomberg.net, Elizabeth Dexheimer in Washington at edexheimer@bloomberg.net, Katherine Chiglinsky in New York at kchiglinsky@bloomberg.net. To contact the editors responsible for this story: Craig Gordon at cgordon39@bloomberg.net, Mike Dorning, Gregory Mott