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Trump's lightning-quick backtrack on executive order relating to DOL rule sows chaos in financial advice industry

The new late-day directive from the president casually strikes the six-month delay on the rule leaving lawyers with mouths agape

Friday, February 3, 2017 – 11:59 PM by Brooke Southall
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Jason Roberts: Regardless of what camp you're in, nobody won. Nobody is happy with what went on here.

Brooke's Note: As I'm working on final edits of this article, CNN drones in the background. Anderson Cooper is trying to make sense of how Trump's Muslim ban just got stopped by a lawsuit in Washington quickly acted on by a Bush-appointed judge. It appears that this odd forth and back may have encouraged the Trump team to reword its EO aimed at striking down the DOL rule. Ill-conceived executive orders, it seems, will get sent back to the kitchen. It gave Jason Roberts and Marcia Wagner, lawyers who guide on DOL regulation, a bad day. But is this herky-jerky, cryptic EO style good for anyone?

A Trump administration effort to give the financial industry clarity about the fiduciary rule has thrown it into a state of chaos. The executive order sent by the President of the United States to the Department of Labor mandating a review of the fiduciary rule has changed it by either 180 days or 180 degrees -- or both.

The main takeaway is the chaos itself around the flip-flop. "This is actually scary," says Marcia Wagner, partner of The Wagner Law Group, echoing what another ERISA attorney said off the record.  "I've been practicing law for 30 years and I've never seen anything like this." See: A veteran securities lawyer takes centenarian stance that the DOL is still 'suitability' reworded, when boiling its 1,000-page 'rule' down to 16-page 'guide'

Wagner is not being hyperbolic, according to Jason Roberts, CEO of the Pension Resource Institute LLC.

"Regardless of what camp you're in, nobody won," he says. "Nobody is happy with what went on here."

Wagner allows that the version of the EO Trump signed today was clearly marked as a "draft." But she says that, unlike what it means for a college term paper, that "draft" pretty much never signals that radical changes can be expected. "It's always really the final [draft]."

Wagner says she can only imagine that Trump flip-flopped after getting pushback based on the first draft that was circulated this morning -- perhaps for running afoul of administrative procedures.

'Cronies' step in

Pushback issued earlier today by Maxine Waters (D-CA), ranking member of the Committee on Financial Services, spoke for the pro-DOL rule crowd.

"So, the Department of Labor stepped in and, after six years of careful consideration, finalized rules last year to require advisors to put the interests of their clients ahead of their own," she said in a statement.

"Trump’s actions today delay those rules so that his cronies in the Administration and on Wall Street can ultimately repeal them. A repeal of these common sense rules will only benefit powerful lobbyists representing insurance companies, big business, brokers and banks, not the millions of working families across the country who would be left vulnerable to their predatory practices." See: Trump's DOL-rule hit man, Anthony Scaramucci, gets hoisted, reportedly, for financial conflict of interest.

The substance of the executive order that Trump made a great show of signing earlier today is toast.

Roberts says the consequential pushback more likely emanated from White House lawyers. He points to the removal of language from the initial draft that cited legal language the executive branch relies on for the power of delay. He said he questioned the language even before its removal. "The citation [related to that power]  is gone," he says. "That's most telling."

Chaos ensues

Though the Trump about-face on the DOL rule was a shock to the financial industry, it is a pattern that has marked his young Administration. Trump has attracted worldwide attention -- much of it in the form of dismayed condemnation -- for his executive order banning immigrants from a host of Muslim nations last weekend.

It soon became apparent parties to the ban were not consulted sowing distrust and creating collateral damage to gray area travelers with green cards, visas or other in-process paperwork and vetting.

Similar confusion reigns over the future of the Affordable Care Act, the building of a 1,500-mile wall on the southern border and even whether a planned raid in Yemen was executed with due care.

Neither nor

Now that confusion falls hard upon the investment industry. In a memorandum sent to her clients by email, Wagner writes: As it stands, the final version of the Executive Memorandum does not, in and of itself, repeal, revise or delay the Fiduciary Rule. The DOL will have to determine whether and how a delay may or should be implemented.... This leaves financial services firms in the difficult situation, for the moment, of not knowing with 100% certainty if there will be an extended applicability date or not." 

The Department of Labor issued one of the shortest press releases in its history for one of its weightier communications.

She adds in the memo: "We understand that interested trade groups are working to obtain clarification from the White House as to what this means."

In fact trade groups may be incensed, Robert says, for getting the earlier false signal. "The sideshow got a number of firms to take their foot off the gas." See: Using DOL as cover, Bank of America cuts the Merrill Lynch bull as it adds a robo, stops paying brokers to stick around and kicks John Thiel upstairs

Though the elimination of the 180-day delay could be viewed as a positive sign for fiduciary rule advocates, it could also portend something more sinister.  "Maybe they wanted a longer delay," Wagner says.

Low bar

Indeed, the language in the final draft suggests a very anti-rule stance, Roberts says. It recommends a study, which is ludicrous considering that the rule already got delayed 18 months for further study once before to see whether it might be a net negative. See: DOL rule will be undone, in a cruel twist, by the Department of Labor -- essentially by a Trump order to cut red tape by staying the Texas court case.

But the executive order offers a very low bar for what might be construed as negative by DOL. The EO says it could be disqualifying were the rule to spawn more litigation -- and nobody questions that the rule will absolutely encourage more lawsuits. In fact litigation is the primary means by which it may be enforced. See: Why SIFMA & Co.'s trip to a friendly North Texas court to upend the DOL rule looks more like its Alamo.

"That's a slam dunk that there's going to be more litigation," Roberts says. "Maybe it's an absolute slam dunk and the new 'DOL 'study' takes 10 minutes and not 10 months."

Teresa Vollenweder

Teresa Vollenweder

February 4, 2017 — 1:16 AM
Thank you, Brooke, for keeping us informed. I would like to talk to you about what some of the brokerages are doing to skirt the DOL COI rule. It's very sneaky.
Teresa Vollenweder

Teresa Vollenweder

February 4, 2017 — 10:53 PM
The sooner the litigation in public courts begins the better for us muppet investors!!! Let the litigation begin now!


February 4, 2017 — 10:56 PM
Will all the brokerages and insurance companies have to admit that what they have been calling financial advisors have all along been nothing more than sales reps? Will they finally have to admit The Big Con that they have been using to screw us muppets while they have had us on a rape drug?
Elmer Rich III

Elmer Rich III

February 5, 2017 — 7:51 PM
We can predict an increase in fear, uncertainty and doubt among all investors and industry leadership which may cause a slowing of business and investing for the industry. Too bad.
Andy Martin

Andy Martin

February 9, 2017 — 9:32 PM
Hilarious that when Warren gasps: "attempt to rip billions of dollars of retirement savings from the pockets of hardworking Americans and put straight into the hands of giant financial institutions" that the supporters she lauds: Betterment, XY Planning and Personal Capital, will be the new beneficiaries of those $billions. What a bunch of rubes.


February 9, 2017 — 9:49 PM
Well, Andy Martin, if those that she mentioned--Betterment, XY Planning and Personal Capital are actually providing a truly-in-the-client's-best-interest service, i.e., real advice, then they will EARN that money instead of just COLLECT it for being professional con artists and disguising sales pitches as advice. People want REAL financial advisors; they do NOT want brokers aka sales reps aka product peddlers aka product pushers that masquerade as financial adviso(e)rs. Do you get that?
Andy Martin

Andy Martin

February 9, 2017 — 9:59 PM
Yes, I do get that in as much as I have been in the industry for 30 years. Read FINRA Rule 2111 and Regulatory Notice 11-02. There you will find that Registered Reps have always acted under the "best interest" standard.


February 9, 2017 — 10:07 PM
Hang on, Andy Martin, while I clean my barf off of my laptop computer. Just how many definitions are there for "best interest" and whose best interest--the client's or the product pusher's and his/her firm's? Are we playing games with words? Your industry is so good at that. I mean, geez, consider how many terms there are for a commission-based account--non-managed, retail, brokerage, non-fee based...do you have any more? Just don't call it commission-based to your clients, right? That might cause the client to start asking questions, and client questions are the enemy, right? You have to direct/control the conversation, right?

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