By Haley Weiss

President Donald Trump signed a presidential memorandum on Friday, February 3rd that could delay or completely halt the Department of Labor’s implementation of its fiduciary rule. The Rule focused on the fiduciary duties of financial advisors, ensuring that they act in their client’s “best interest” and put their client’s welfare above their own when managing retirement accounts. The Rule was passed last year, and was scheduled to take effect in April of this year. Proponents of the Rule say that it is an important protection for investors who are of a particularly vulnerable class—older people with retirement accounts.

The Clinic, in fact, drafted a comment letter to the Department of Labor praising the Rule. The comment letter explained that even well-educated investors can become confused by the increasing complexity of the current broker-dealer industry, and this Rule would ensure that the proper protections are in place for investors with retirement accounts. Opponents of the Rule, however, state that it could have some negative unintended consequences. Specifically, they worry that the Rule is “too complex and costly and would significantly increase the cost of giving and receiving advice.” Opponents claim the inadvertent effect of this is that middle and lower income clients will no longer be able to obtain financial advice, as it will be too expensive for firms to take these investors on at a price they can afford.

Siding with the Rule’s opponents, President Trump’s Memorandum calls for the Department of Labor to review the Rule to determine whether it affects the ability of these investors to obtain the financial advice that they need. The Memorandum sets out certain criteria that the Rule should be assessed on. First, the Memorandum dictates that the Department of Labor should evaluate whether the Rule harms Americans by reducing access to financial advice; whether anticipated implementation of the Rule has already caused “dislocations or disruptions within the retirement services industry”; and whether the Rule is likely to increase both the amount of litigation in this area and the prices for access to financial services. Next, the Memorandum states that if any of the above questions are answered in the affirmative, then the Department of Labor must “publish for notice and comment a proposed rule rescinding or revising the Rule, as appropriate and as consistent with law.”

The express denial of a duty owed to investors with retirement accounts could have negative effects on securities claims, as many cases rely on a breach of fiduciary duty that the broker owed to put their client’s interests above their own. Those with a stake in the outcome will have to wait and see whether the rule is implemented as is, revised, or rejected altogether.