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Trump’s New Regs Order Doesn’t Halt DOL Confusion

By Thomas Coyle February 2, 2017

Early this week U.S. President Donald Trump signed an order requiring federal agencies cut two regulations for every new regulation introduced.

This move was not a surprise. It was high on a first-100-days to-do list candidate Trump unveiled shortly before he was elected. And the measure was in keeping with an anti-red-tape message he repeated through a long and bitter campaign for the U.S. presidency.

The biggest question for financial advisors stemming from the president’s executive order on new regulations has to be its implications for the Department of Labor’s new fiduciary rule. That regulation, which is supposed to take effect on April 10, requires all advisors – including brokers who are not otherwise bound by a fiduciary standard – to put their clients’ interests first when it comes to retirement accounts.

For Robert Schmansky, who describes himself as “one of the few fee-only advisors who don’t think it” – the DOL rule – “can go away quick enough,” Trump’s general order on new regulations isn’t enough to tell what the new administration’s stance may be on a rule that’s already in the works.

“I’m worried that it will be postponed and the market won’t have any clarity,” says Schmansky of Clear Financial in Livonia, Mich.

Though he adds it’s tempting to suppose Trump, “who’s trying to clear out bad regulations for small businesses” will jettison the DOL rule, it remains “up in the air, and we’re still getting mixed signals.”

This uncertainty is a problem for Schmansky, who manages around $15 million and does “lots of hourly work.” He says the rule raises questions about his ability to continue in business without radically altering the way he works with clients.

“We were fiduciaries before and we are fiduciaries now.”
Leon LaBrecque
LJPR Financial Advisors

“I’m concerned about my ability to continue serving consumers,” adds Schmansky. By this he means his ability to provide middle-class consumers with retirement-account advice in the context of by-the-hour financial planning could be jeopardized by some interpretations of the DOL rule.

In this light, Schmansky says he might have to drop customers for whom a fee on assets under management would be economically tough for vendor and buyer alike.

Already, says Schmansky, “I have been holding off on fee increases and adding high minimums for the hourly advice based on the rule outcome.”

Delay rather than repeal gives time for proponents – or opponents resigned to its inevitability – “to make it even worse,” Schmansky says.

In particular, Schmansky worries that a delay would allow for more tinkering along the lines of, for instance, a “220-page exemption” to the rule for sellers of “equity indexed annuities.” The worst of these FAs, he says, “are telling a story too good to be true” while “locking people into EIAs for periods of 10 to 15 years.”

Overall, Schmansky worries that a delay rather than outright repeal of the rule means it might still be in place when the market turns sharply south, “imposing more costs on producers who are doing the right things” when they can least afford them.

Leon LaBrecque

Instead of rushing to support extending the fiduciary standard to brokers, Schmansky says RIA-industry associations should highlight the qualitative differences between all-in fiduciaries – like him and other RIA-based advisors – and those who may be made fiduciaries on an episodic basis. In recent years, he says, this is something these organizations have stopped doing “in a rush to support the DOL rule.”

Meanwhile, Leon LaBrecque, managing partner and CEO of LJPR Financial Advisors in Troy, Mich., thinks the DOL rule has a short shelf life under Trump.

“The makeup of the administration is clearly big business and big finance, and I think that in general big finance is opposed to the fiduciary standard,” LaBrecque, whose firm manages more than $650 million, says in an email exchange with FA-IQ.

And LaBrecque isn’t bothered by the prospect of the rule’s demise.

“We were fiduciaries before and we are fiduciaries now,” he writes. “So acting in the best interests of the client is something we always do.”

As for the basic thrust of Trump’s pronouncement on new federal rules, LaBrecque says it’s rather like a big company deciding it needs to fire the “under-performing 10% of employees” — a policy which if continued would result in an employee headcount of zero.

It presumes that “two-thirds of all regulations are unnecessary” — something LaBrecque says he can’t verify either way. “Clearly, some rules are inefficient and burdensome. Some are not.”