An executive order signed by President Trump Friday will delay a Department of Labor rule reshaping retirement investment advice, a major initiative of former President Barack Obama’s last year in office.
The executive memorandum orders a review by the Trump Labor Department, according to the text released by the White House late Friday afternoon, and likely will delay the rule’s applicability.
The original Obama rule, finalized in April, was set to go into effect on April 10. Instead, the Republican-led Congress and Trump’s Labor Department will have a chance to revise it. Labor secretary nominee Andy Puzder has yet to have a hearing on his nomination.
White House press secretary Sean Spicer said at a Friday press briefing that the White House is directing the labor department to review the rule, calling it a “solution in search of a problem.”
“It doesn’t get any better than that,” Trump said while signing the order.
The order requires the department to report on whether the rule could lead to a loss of access to financial advice, disruption, or more litigation.
“The Department of Labor will now consider its legal options to delay the applicability date as we comply with the president’s memorandum,” acting U.S. Secretary of Labor Ed Hugler said in a statement provided to the Examiner.
Obama’s Labor Department issued the rule to crack down on conflicts of interest among advisers dealing with tax-privileged retirement accounts, such as individual retirement accounts.
Under current regulations, some advisers, brokers and insurance agents are not held to a legal standard that requires them to act in their clients’ best interests. One fairly widespread practice is to steer clients into inappropriate high-fee investment products for which the advisers receive kickbacks. The Obama White House estimated that the industry bilks savers out of $17 billion annually through such practices.
The financial services industry, however, argued that the finalized regulations would be overly burdensome and would result in some advisers having to drop small business and individual clients, depriving them of access to advice.
Friday’s move by Trump drew immediate plaudits from the industry and congressional Republicans, who fought hard to stop Obama from finalizing the rule.
“I’m glad to see the Trump administration recognize the potentially devastating effect of President Obama’s far-reaching fiduciary rule,” said Rep. Peter Roskam, R-Ill., the author of legislation last year to block the rule. I look forward to working with the new administration to craft a standard that raises the bar for the financial services industry without eliminating access to quality retirement advice.”
Trump’s move elicited harsh criticism from the Democrats and consumer advocates who lobbied for years for the fiduciary standard to be applied to all brokers and advisers.
Sen. Elizabeth Warren, D-Mass., who had stood by Obama when he called for the rule, said in a statement that Trump’s order would allow “investment advisers to cheat you out of your retirement savings.” Friday morning, Warren’s office released a new report detailing the prevalence of kickbacks, such as vacations and prizes, in the industry.
