On Friday President Donald Trump signed an executive order calling for his administration to review the Dodd-Frank Wall Street Reform and Consumer Protection Act and issued a memorandum to delay — and potentially cancel — the Department of Labor’s Fiduciary Rule.
Originally scheduled to take effect on April 10, the Fiduciary Rule requires brokers to act in their clients’ best interests when advising them about retirement options. Trump has instead directed the Department of Labor to conduct a legal and economic analysis of the regulation and rescind it if it proves inconsistent with administration priorities. “We think it is a bad rule. It is a bad rule for consumers,” White House National Economic Council Director Gary Cohn told the Wall Street Journal. “This is like putting only healthy food on the menu, because unhealthy food tastes good but you still shouldn’t eat it because you might die younger.” A 2015 report from the White House Council of Economic Advisers estimated that conflicts of interest by brokers reduce annual returns on retirement savings by 1 percentage point and cost investors up to $17 billion a year.
Dodd-Frank, a sweeping piece of legislation passed by the Obama administration as a response to the financial crisis of 2008, will face unspecified changes. The New York Times noted that the executive order is vague in its wording but “amounts to a broad grant of authority to the Treasury Department to find ways of restructuring major provisions of Dodd-Frank, directing the secretary to conduct a sweeping review of existing laws and make sure they align with the administration’s goals.” Trump said he expects to be “cutting a lot out of Dodd-Frank because frankly, I have so many people, friends of mine that had nice businesses (who) can’t borrow money … the banks just won’t let them borrow it because of the rules and regulations in Dodd-Frank.”
Trump announced these moves while surrounded by CEOs from the financial services industry, including Larry Fink, CEO of investment firm Blackrock, and Jamie Dimon, the chief executive of JPMorgan Chase. Dimon recently spoke with Bloomberg at the World Economic Forum and said he was not in favor of throwing out all of Dodd-Frank but that it “makes sense after a while to open it up, look at what worked, what didn’t, recalibrate it, modify it.” Dimon laments that there is $2.5 trillion sitting at the central bank in excess reserves, which in the past could be used for lending but is not available today because of government requirements.
Trump’s executive order, while signaling intent, does not mean immediate changes are on the horizon. Jaret Seiberg, an analyst with brokerage and investment bank Cowen & Co., noted that the executive order may have little effect in the near term. “What this means is that the White House today is setting the stage for actions later in its first term,” Seiberg wrote. “This is a process that could easily drag into 2019 before banks see material changes in the regulations.”
Trump’s executive order states that the nation’s financial regulations should be based on several key principles. Some critics were alarmed by its tone. “It doesn’t lead with the notion of stability or protection,” said Brian Knight, a research fellow at George Mason University’s Mercatus Center, in an interview with the LA Times. “It is a document that is moving away from the ‘avoid risk first’ model toward a ‘let’s have a vibrant, dynamic economy’ model.”Democrats and consumer groups were outraged by the developments, with Senator Elizabeth Warren observing that President Trump “talked a big game about Wall Street during his campaign - but as POTUS we’re finding out whose side he’s really on.” Warren decried the potential destruction of the Fiduciary Rule. “After literally standing next to Wall Street CEOs, (Trump) made it easier for investment advisors to cheat you out of your savings.”