White House memo confuses Wall Street on fate of fiduciary rule

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By Sarah N. Lynch and Elizabeth Dilts | WASHINGTON/NEW YORK

WASHINGTON/NEW YORK 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

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

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 regulation.

“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

Trump’s choice to be Labor Secretary, Andrew Puzder, has
seen his own confirmation indefinitely postponed in the Senate
amidst delays with his ethics paperwork.

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.


In the meantime, lawyers are advising their financial
services clients to continue preparing for the upcoming

“What is clear from the memo is that we don’t have certainty
yet,” said Michael Kreps, an attorney with the Groom Law Group.

The 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 process.

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

Legal experts say the Labor Department has a few possible

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 is justified.

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

Three of the biggest U.S. brokerages, Bank of America Corp’s Merrill Lynch, Morgan Stanley and Wells Fargo
Advisors, 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. (Additional reporting by Ayesha Rascoe in Washington)

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