Mr. Trump sides with Wall Street; you lose
The Trump administration has no grounds for blocking the “fiduciary rule,” an Obama-era regulation that requires financial advisers to put their clients’ interests first when giving advice or selling investments for retirement accounts.
But blocking the rule remains an administration priority, no matter how arbitrary, capricious and harmful that would be. In one of his first acts in office, President Trump effectively delayed the rule’s implementation date, April 10, by issuing a memorandum that called for its review and possible rollback. The Labor Department, which has jurisdiction over the issue, could find no legal way to alter or rescind the rule, so it took effect on June 9, with one catch: The department said it would not enforce the rule until Jan. 1, 2018, ostensibly to give financial firms time to adapt. Then this month, the department requested a further enforcement delay, to July 1, 2019. The request will be considered by none other than the White House Office of Management and Budget, which vets regulation.
This is obstruction, pure and simple. The fiduciary rule was debated and drafted over many years, before being completed in 2016. Since then, it has survived several legal challenges in federal court brought by the financial industry. In one of the cases, decided in February, the judge described the industry’s arguments as “without merit,” “unpersuasive” and “at odds with market realities.” Those judgments, as well as copious research that preceded the rule-making, attest to its importance: The fiduciary rule, properly enforced, would prevent banks, brokerage firms and insurance companies from steering customers into overly expensive products and strategies when comparable lower-cost option are available; such steering annually drains tens of billions of dollars in excessive fees from Americans’ retirement savings.
Still the Trump administration persists in its efforts to derail the fiduciary rule. Why? Several financial firms that have already made strides in adapting to the rules may pine for a return to the old days, but that can’t be the whole story. Another plausible explanation is fear on Wall Street that consumers and regulators might someday demand similar, customer-first standards for all financial advisers, not just those handling retirement accounts.
That would provide investors the same high level of care for both retirement and nonretirement accounts, clearly a good thing. But Wall Street wants to keep selling investments that make the most money for Wall Street, and it can’t do that if strong fiduciary standards are in place. It is no coincidence that the administration’s effort to roll back the fiduciary rule has been spearheaded by Gary Cohn, who was the president of Goldman Sachs before he became Mr. Trump’s top economic adviser.
If, as expected, the O.M.B. approves the enforcement delay and then uses the time to propose a watered-down rule, investor advocates could file a lawsuit arguing that the administration is attempting an end run. What’s not clear is whether the rule would be enforced while the two sides duked it out or whether it would be delayed further while in court.
Regardless of the outcome, this much is clear: Mr. Trump has taken sides, and he has chosen Wall Street.