Regulation Reversal the Ultimate Trump Card?

On the eve of his inauguration, it's worth remembering that President-elect Donald J. Trump is the ultimate Wall Street insider.

He financed his real estate empire there, built his wealth there, and made the kind of life-changing connections that helped catapult him into the White House.

As Inauguration Day dawns, Trump brings great promise or great gloom, depending on which side of the political aisle one sits.

The new administration’s approach to regulation is a topic of great interest in the financial services industry. And there is reason to be positive.

Given that Wall Street background, is there anyone who really believes Trump will crack the whip on financial services firm? Not really. Consider these comments from the president-elect, leading up to, and after his election:

On Dodd-Frank: “Dodd-Frank has made it impossible for bankers to function. It makes it very hard for bankers to loan money for people to create jobs, for people with businesses to create jobs. And that has to stop. My policy will be close to (the) dismantling of Dodd-Frank.”

On the Consumer Financial Protection Board: “I will work to repeal the Consumer Financial Protection Board.”

On financial regulatory mandates, in general: "I think financial regulation, all it does is make a bad banker probably worse, if you think about it.”

With the Department of Labor’s fiduciary ruling set to take effect, some Wall Street watchers are openly wondering if, for bad or good, a Trump administration will work to kill the DOL rule.

“During the Obama presidency, the DOL, under the leadership of Secretaries’ Solis and Perez, has expanded protections and regulatory oversight in several key areas impacting U.S. workers,” said Doug Dahl, counsel with Bass, Berry & Sims.

Three Big Rules

Three of the most significant areas of expansion have been with the Affordable Care Act, the final DOL Fiduciary Rule and the DOL Overtime Rules. A Texas judge issued a preliminary injunction last month blocking the OT rules, and lawmakers have the ACA squarely in their sites.

That leaves the fiduciary rule, which might turn out to be the last regulatory gasp for the DOL for some time to come.

“This expansionary trend for the DOL is likely to be significantly restricted under the Trump presidency, taking a back seat to agencies more aligned with Trump’s agenda,” Dahl noted.

Lawsuits to repeal, overturn or delay the DOL Fiduciary Rule have been in play for months, and lawmakers have been hard at work in their efforts to do the same.

“Trump’s presidency makes the viability of repealing or at least delaying these rules much more likely,” Dahl said. “In fact, the DOL’s Fiduciary Rule is probably first on the chopping block for Trump, in terms of when actual changes to the rules will occur.”

Despite the fact that many believe the rule will be overturned or delayed, Dahl said RIAs must “still prepare” for compliance beginning April 10, 2017. At the same time, they need to consider how a likely delay should impact their position on certain issues.

“RIAs and plan advisors should develop contingency plans as soon as possible,” he said. “For those RIAs and plan advisors opposing the rule, they should continue to press the avenues of change both locally and at the national level.”

Not every financial industry insider is so sure Trump will slice and dice Wall Street regulations enacted under Obama.

“Frankly, anyone prognosticating what Donald Trump will do with many Dodd-Frank era regulations is throwing darts in the dark,” said Braden Perry, a former enforcement agent, and founder of Kennyhertz Perry in Kansas City.

“The president elect has vowed to strip these rules but it's unclear what, if anything will take their place. Regarding the DOL rule specifically, it's still been legally successful with several suits.”

Won't Be Easy

Others say that “dismantling” the DOL rule won’t be easy for Trump, if he decides to go in that direction. Eliminating the rule will be “more cumbersome than simply waiving a magic wand,” said Brendan McGarry, an attorney with Kaufman Dolowich & Voluck.

That said, there multiple ways to accomplish that objective, he added:

• Instruct the Deptartment of Justice to “stand down” in defending the remaining federal lawsuits challenging the rule.
• Directing the Secretary of Labor produce a new rule that repeals the fiduciary rule published in April 2016.
• Lobbying Senate Democrats for enough support to pass a bill by Rep. Jeb Hensarling, R-Texas, known as the Financial CHOICE Act.
• Appointing a Supreme Court justice who will side with the opponents to the bill (assuming any of the lawsuits seeking to stay or repeal the rule make it to the Supreme Court).

“None of these is a kill switch,” McGarry said. “But it appears standing down in the defense of the cases against the DOL may be the quickest road to staying the effects of the Fiduciary Rule.”

Time will tell whether or not the Trump White House will have the DOL rule in its crosshairs. For financial advisors, that means months of more uncertainty, at a time when they can least afford it.

Brian O'Connell is a former Wall Street bond trader, and author of the best-selling books, The 401k Millionaire and CNBC's Guide to Creating Wealth. He's a regular contributor to major media business platforms, including CBS News, The Street.com, and Bloomberg. Brian may be contacted at [email protected].

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