President Donald Trump signed a pair of executive orders today that called for overhauling the 2010 Dodd-Frank Act and delaying by 180 days a rule that would have required advisors on retirement accounts to act in the best interests of their clients and had been set to take effect in April.
Both measures reflect Trump’s earlier pledge to aggressively pare back regulation of Wall Street. In addition to rolling back Dodd-Frank, the orders take aim at the so-called fiduciary rule, created by the Department of Labor (DoL) last year protect retirement plan participants from conflicts of interest that can arise when high-commission financial products are sold to investors by stockbrokers and insurance salespeople. The executive order also calls for a legal and economic review of the rule.
“While today’s executive order calls for the dismantling of Dodd-Frank, Fitch does not believe that the Dodd-Frank Act will be repealed in full; however, select provisions are potentially subject to substantial revision,” wrote Joo-Yung Lee, head of North American financial institutions for Fitch Ratings, in a note following the announcement. “Any changes in rules that reduce capital and liquidity requirements could have negative rating implications if banks respond to such rules with weaker capital and liquidity positions.”
Administration executives said the moves were designed to loosen regulations in hopes of spurring innovation and broadening choice. “Americans are going to have better choices and Americans are going to have better products because we’re not going to burden the banks with literally hundreds of billions of dollars of regulatory costs every year,” White House National Economic Council Director Gary Cohn told the Wall Street Journal in an interview on Thursday.
The fiduciary rule had come under heavy fire from members of the financial community and provoked seven separate lawsuits against the DoL by the U.S. Chamber of Commerce (on behalf of small broker-dealers and insurance agents) and six other industry players and trade organizations. Federal judges shot down two of the suits in November.
In a Wall Street Journal op-ed titled “ Your 401(k) Doesn’t Need a Federal Babysitter,” Anthony Scaramucci, the SkyBridge Capital founder-turned-Trump booster, warned that the rule might have unintended consequences, such as forcing investors to pile into passively managed index funds. AQR Capital Management founder Cliff Asness echoed that sentiment in an essay published on AQR’s website. “There are no easy answers here,” Asness wrote. “But there are issues to consider beyond the superficial ‘hey, it’s great to make people legally promise to act nice!’”
