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President Trump Issues Executive Orders Impacting Dodd-Frank Act and DOL Fiduciary Duty RulePDF
BY: BRIAN NALLY
On Friday, February 3, 2017, President Trump signed two Executive Orders impacting the financial services industry.
1. Dodd-Frank Act
President Trump signed an Executive Order designed to review the regulations contained in the 2010 Dodd-Frank Act. The Executive Order, vaguely titled “Presidential Executive Order on Core Principles for Regulating the United States Financial System,” does not expressly mention the Dodd-Frank Act but states that the policy of President Trump’s Administration is to “regulate the United States financial system in a manner consistent with the following principles of regulation:
(a) empower Americans to make independent financial decisions and informed choices in the marketplace, save for retirement, and build individual wealth;
(b) prevent taxpayer funded bailouts;
(c) foster economic growth and vibrant financial markets through more rigorous regulatory impact analysis that addresses systemic risk and market failures, such as moral hazard and information asymmetry;
(d) enable American companies to be competitive with foreign firms in domestic and foreign markets;
(e) advance American interests in international financial regulatory negotiations and meetings;
(f) restore public accountability within Federal financial regulatory agencies and rationalize the Federal financial regulatory framework.”
https://www.whitehouse.gov/the-press-office/2017/02/03/presidential-executive-order-core-principles-regulating-united-states (last visited 2/6/2017). President Trump explained during a briefing Friday morning that he “expect[s] to be cutting a lot out of Dodd-Frank” and lamented the fact that “many people, friends of mine, with nice businesses...can’t borrow money, because the banks just won’t let them borrow because of the rules and regulations and Dodd-Frank.” https://www.theatlantic.com/business/archive/2017/02/trump-dodd-frank/515646/ (last visited 2/6/2017).
Although the Executive Order is unclear on specifics, there is little doubt that the Dodd-Frank’s uniform fiduciary duty is all but dead. In this regard, Section 913 of the Dodd-Frank Act required the SEC to conduct a study and evaluate the effectiveness of the existing legal or regulatory standards of care for personalized investment advice, among other things. The SEC Staff eventually issued its findings on January 11, 2011 and recommended a uniform fiduciary standard of conduct for broker-dealers and investment advisors, explaining that customers do not understand the different standards of care and expect investment professionals to act in their best interest. No formal action has been taken since 2011 to create a uniform fiduciary standard, but the Department of Labor’s recently adopted Fiduciary Duty Rule increased the likelihood of a uniform fiduciary standard becoming a reality in the near-term. President Trump’s recent Executive Order changes that, and:
2. Department of Labor Fiduciary Duty Rule
President Trump also signed an Executive Order calling for a review of the Department of Labor’s Fiduciary Duty Rule. https://www.whitehouse.gov/the-press-office/2017/02/03/presidential-memorandum-fiduciary-duty-rule (last visited 2/6/2017). President Trump explained that “[o]ne of the priorities of my Administration is to empower Americans to make their own financial decisions, to facilitate their ability to save for retirement and build the individual wealth necessary to afford typical lifetime expenses.” And he believes the Department of Labor’s Fiduciary Duty Rule “may significantly alter the manner in which Americans can receive financial advice, and may not be consistent with the policies of my Administration.”
President Trump therefore directed the Department of Labor to “examine the Fiduciary Duty Rule to determine whether it may adversely affect the ability of Americans to gain access to retirement information and financial advice” and prepare an updated analysis of the fiduciary duty rule on (i) whether the rule has or will likely harm investors due to a reduction of Americans’ access retirement account services, (ii) whether there has been “dislocations or disruptions” within the financial services industry that may adversely affect investors, and (iii) whether the Fiduciary Duty Rule is likely to cause an increase in litigation, and an increase in the prices that investors must pay for access to retirement services.
If the answer is yes to any one of the considerations or if the Department of Labor concludes for any other reasons that the Fiduciary Duty Rule is inconsistent with the Administration's priorities, the Department of Labor must submit a proposed rule rescinding or revising the Fiduciary Duty Rule. Given the Administration's tone and activism toward the removal of financial regulations enacted during the Obama Administration, industry leaders should expect significant developments, and a potential repeal of the Fiduciary Duty Rule or a delay in its applicability prior to April 10, 2017, the first effective date of the Fiduciary Duty Rule.
If you have questions about either of these Executive Orders, please contact a member of the Financial Services Professional Liability Practice Group.