What Comes Next with DOL Conflict of Interest Standard

Brad Campbell, Washington-based counsel with Drinker Biddle and Reath, has been in frequent contact with the Trump Administration in recent weeks; he believes the Department of Labor (DOL) rulemaking will almost certainly be halted before April, but having a Plan B is a good idea for prudent advisers, he says.

Campbell laid out his expectations during an “Inside the Beltway” call-in event presented by Natixis Global Asset Management. Matching the bulk of industry commentary shared so far with PLANADVISER, Campbell said he strongly expects the implementation of the fiduciary rule will be halted, or at least significantly dialed back, by the Trump Administration.

“We all probably already know about the memo that has come out seeking to freeze and potentially pull back all ongoing regulatory projects,” Campbell observed, “but I agree with the notion that the DOL fiduciary rule is not really going to be impacted by that memo. While its applicability dates are forthcoming, it is already a properly implemented regulation, and so it is not something that can be just whisked away with the stroke of a pen.”

Campbell noted that the Trump Administration will very likely (and likely very soon) issue a separate order specifically pertaining to the DOL rulemaking, adding “this is likely to occur in the very near future … such an announcement could come any day this week or next.”

“At a gut level, what are the chances of delay and repeal, or delay and modify?” Campbell was asked by his colleague and principal at Drinker Biddle and Reath, Fred Reish.

“It sounds like right now there is more interest in the administration at looking at a repeal approach,” Campbell responded. “But we should also keep in mind that none of the people who would lead this effort within the administration have been confirmed yet. Only the Labor Secretary has been formally nominated—many other relevant positions yet to be filled who will have to play a role. But at a minimum we expect it will be modified substantially. We will soon know who the personnel are who are making this decision.”

NEXT: Acting amid the uncertainty 

What are Campbell and Reish telling clients they should do right now?

“It’s quite likely the rule will be delayed, but being able to comply with the transitional best-interest contract exemption that would apply between April 10 and the end of the year may be a good Plan B, in case the administration does not move fast enough in this particular area … There are a lot of other priorities that could take precedence … And honestly with the SEC actions and FINRA actions we are seeing, tied to consumer demand, it will not be a bad idea to enhance the processes you are using to make and document recommendations, fiduciary or otherwise.

“Overall we will still see a lot more financial institutions doing more and more level-fee services … There will be a practical competitive impact beyond the legal issues we’re discussing,” he adds.

Turning specifically to Congress and what that body might do in the weeks and months ahead with respect to the retirement planning industry, Campbell said that “tax reform is probably the biggest game in town and we should all be watching … There is a need for comprehensive reform, but also a lot of risk in how retirement plans may be impacted.”

Campbell noted that “it is some $1.5 trillion over 10 years that the government is measuring when it comes to taxes that aren’t being collected on retirement plans that could be taxed under the code ... That amount could easily become a target.”

“If the Republican Congress wants to do tax reform that is revenue neutral, than retirement plans could easily be an area for reform,” he concluded. “Some changes could be benign and some could be very harmful, frankly. It’s an area where we really need to pay attention, and there are so many options on the table, from capping overall deductions to reducing deferral limits to requiring the second half of a given year’s contributions to go to a Roth account.”