A US Labor Department rule targeting so-called junk fees in some retirement investment products will likely fail to see the light of day under president-elect Donald Trump's new administration.
The final fiduciary rule, announced April 21, impacts how retirement products, including certain life insurance and annuity policies, are sold by updating the definition of an investment advice fiduciary under the Employee Retirement Income Security Act.
The updated definition was supposed to go into effect Sept. 23, but due to two legal challenges, the effective date was halted as judges in the US District Court for the Eastern District of Texas and the US District Court for the Northern District of Texas issued stays. Two US House committees also passed measures in July that inhibited the implementation of the rule, which has been widely opposed by the insurance industry.
The incoming Trump administration probably will not pursue final implementation of the rule, according to CreditSights analyst Josh Esterov.
"His administration will likely view implementation of the fiduciary rule as another layer of unnecessary regulation and oversight," Esterov said in an email.
The rule has been extremely contentious since it was first proposed. Insurance industry trade groups, including the American Council of Life Insurers and the Insured Retirement Institute, have pushed back on it, arguing that regulations already in place are more than adequate to protect consumers.
A spokesperson with the American Council of Life Insurers told S&P Global Market Intelligence that the group was pleased to see courts stay the implementation of the rule and that its position on the regulation remains unchanged.
"The stay of the effective date provides consumers with a needed reprieve from these devastating consequences as the court considers the substantial legal issues we have raised regarding this ill-advised rule," the spokesperson said in an email.
State insurance regulators and the National Association of Insurance Commissioners have also expressed qualms with the rule and the way it was introduced and processed. At least one life insurer has criticized the rule, saying it could have the "unintended consequence" of stifling consumer access to certain financial tools.
Consumer advocates and current Labor Department leadership have defended the rule as offering enhanced protections to retirement investors.
"This rule protects the retirement investors from improper investment recommendations and harmful conflicts of interest," acting Secretary of Labor Julie Su said in an April press release. "Retirement investors can now trust that their investment advice provider is working in their best interest and helping to make unbiased decisions."