ONE OF President Barack Obama’s last major policies was the “fiduciary rule,” a Labor Department regulation aimed at alleged conflicts of interest in the professional advice that millions of Americans receive about their tax-advantaged retirement accounts. To cut a long story short, previous regulations require advisers to find their clients “suitable” investments, a looser standard than applies to fiduciaries, who are legally obligated to serve the client’s “best interest.” In practice, this allowed advisers to accept extra compensation for steering clients into certain investment products that were okay, but not necessarily optimal.
The fiduciary rule applied the best-interest standard, culminating more than a half decade of brutal Washington trench warfare that had pitted the Obama administration and its labor- and consumer-group allies against financial companies and their Republican allies. On balance, it was a sound, common-sensical measure. Alas, one of President Trump’s first acts as president was to re-open the whole matter at the behest of the opponents. On Feb. 3, he ordered the Labor Department to review the rule with an eye toward scrapping it. “This is exactly the kind of government regulatory overreach the president was put in office to stop,” White House press secretary Sean Spicer said at the time.
In recent days, Labor Secretary Alexander Acosta has given the fiduciary rule’s supporters new hope by announcing that he was going to allow it to go into effect on Friday, after a brief postponement to assess the impact of Mr. Trump’s edict. In a Wall Street Journal op-ed, Mr. Acosta acknowledged that the fiduciary rule had survived federal court challenge so far and that federal law did not permit him to block it pending the reconsideration, and possible rescission, implied by Mr. Trump’s memorandum. Instead, he will launch a new study of the rule, with time for comment from both industry and the public, while it remains on the books. “Deregulation must find its way through the thicket of law,” Mr. Acosta wrote.
Observing these legal requirements is to Mr. Acosta’s credit, of course. Caveats — big ones — apply, however. Full enforcement of the new rule for all kinds of retirement accounts would not begin until Jan. 1, 2018, in any case. Mr. Acosta’s op-ed strongly implied he agrees with opponents’ claim that the fiduciary rule unduly limits consumer options. His reference to the “thicket of law” therefore sounded like an appeal for patience while the department figures out a legally permissible way to put Mr. Trump’s manifest policy objective into practice.
Whatever eventually happens, the entire saga is a case study in the federal regulatory process’s costly complexity. The best-case scenario is that the rule survives undiluted after months of additional uncertainty for both investment advisers and their customers. The worst-case, and all-too, likely, scenario is that it does not.
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