FROM: Reince Priebus Assistant to the President and Chief of Staff

SUBJECT: Regulatory Freeze Pending Review

The President has asked me to communicate to each of you his plan for managing the Federal regulatory process at the outset of his Administration. In order to ensure that the President's appointees or designees have the opportunity to review any new or pending regulations, I ask on behalf of the President that you immediately take the following steps: 

: 1. Subject to any exceptions the Director or Acting Director of the Office of Management and Budget (the "OMB Director") allows for emergency situations or other urgent circumstances relating to health, safety, financial, or national security matters, or otherwise, send no regulation to the Office of the Federal Register (the "OFR") until a department or agency head appointed or designated by the President after noon on January 20, 2017, reviews and approves the regulation. The department or agency head may delegate this power of review and approval to any other person so appointed or designated by the President, consistent with applicable law.

2. With respect to regulations that have been sent to the OFR but not published in the Federal Register, immediately withdraw them from the OFR for review and approval as described in paragraph 1, subject to the exceptions described in paragraph 1. This withdrawal must be conducted consistent with OFR procedures.

3. With respect to regulations that have been published in the OFR but have not taken effect, as permitted by applicable law, temporarily postpone their effective date for 60 days from the date of this memorandum, subject to the exceptions described in paragraph 1, for the purpose of reviewing questions of fact, law, and policy they raise. Where appropriate and as permitted by applicable law, you should consider proposing for notice and comment a rule to delay the effective date for regulations beyond that 60-day period.

In cases where the effective date has been delayed in order to review questions of fact, law, or policy, you should consider potentially proposing further notice-and-comment rulemaking. Following the delay in effective date:

(a) for those regulations that raise no substantial questions of law or policy, no further action needs to be taken; and

(b) for those regulations that raise substantial questions of law or policy, agencies should notify the OMB Director and take further appropriate action in consultation with the OMB Director.

4. Exclude from the actions requested in paragraphs 1 through 3 any regulations subject to statutory or judicial deadlines and identify such exclusions to the OMB Director as soon as possible.

5. Notify the OMB Director promptly of any regulations that, in your view, should be excluded from the directives in paragraphs 1 through 3 because those regulations affect critical health, safety, financial, or national security matters, or for some other reason. The OMB Director will review any such notifications and determine whether such exclusion is appropriate under the circumstances.

6. Continue in all circumstances to comply with any applicable Executive Orders concerning regulatory management.

As used in this memorandum, "regulation" has the meaning given to "regulatory action" in section 3(e) of Executive Order 12866, and also includes any "guidance document" as defined in section 3(g) thereof as it existed when Executive Order 13422 was in effect. That is, the requirements of this memorandum apply to "any substantive action by an agency (normally published in the Federal Register) that promulgates or is expected to lead to the promulgation of a final rule or regulation, including notices of inquiry, advance notices of proposed rulemaking, and notices of proposed rulemaking," and also covers any agency statement of general applicability and future effect "that sets forth a policy on a statutory, regulatory, or technical issue or an interpretation of a statutory or regulatory issue." This regulatory review will be implemented by the OMB Director. Communications regarding any matters pertaining to this review should be addressed to the OMB Director.

The OMB Director is authorized and directed to publish this memorandum in the Federal Register.


The countdown continues to the April 10, 2017 implementation date of the U.S. Department of Labor's fiduciary rule. Opponents are optimistic that court challenges, legislative action, or President Donald Trump's new administration will alter, delay, or attempt to kill the new rules governing retirement investment advice, but many firms have already begun to adjust.

Although Trump has not specifically addressed the rule in public comments as president, his senior advisor Anthony Scaramucci has said the administration would work to delay or repeal the rule. An executive order Trump signed just hours after the inauguration ordered an immediate freeze of all pending regulations until they can be reviewed by the new administration, which could set the stage for a fiduciary-rule delay.

The rule requires brokers handling retirement accounts to act in the best interests of customers, imposing a higher standard of care and conflict-of-interest restrictions than previously. It could have a big impact on how many brokers get paid.

Below we review the current state of uncertainty surrounding the rule as well as the SEC guidance for fund managers to help them comply. 

Trump's regulatory freeze

The memorandum(PDF) signed Friday states that regulations that have been finalized and published but have not reached effective date must be delayed for 60 days for review, with the potential for a new notice to reopen the regulation could occur. The memo makes an exception for "critical health, safety, financial, or national security matters," and asks agencies to identify any regulations that can’t be delayed for other reasons.

One industry executive Regulatory Intelligence spoke with was certain that the rule was "definitely being delayed" and that "lobbyists would then press for another delay after that."

The process of stalling and reviewing pending regulations is typical during a presidential handoff. But Trump and his aides have expressed their disfavor over the fiduciary rule specifically, meaning it is a likely target.

Barack Obama made a similar move when he assumed the presidency in 2009. The White House told federal agencies to refrain from sending any new or proposed rules to the Federal Register. The agencies were also told to withdraw any regulations that had not yet been published and consider extending by 60 day the effective date of those rules that had already been published.

The latest on the court challenges

Six different court challenges were filed last year in four federal courts, in Washington, DC, Kansas, Minnesota, and Texas. The Texas court consolidated three cases into one, thus giving opponents multiple shots at a legal victory. 

The first two cases have been decided in favor of the government. In early November the federal appeals court for the District of Columbia denied the National Association for Fixed Annuities' (NAFA) request for an injunction blocking enforcement of the rule. The court rejected each of the arguments made by NAFA. The group argued that the inclusion by the Department of Labor (DOL) of fixed indexed annuities in the rule was arbitrary and capricious, that the DOL unlawfully created a private right of action, and that the regulation is "void for vagueness" because the Best Interest Contract Exemption limits compensation to a "reasonable level."

In late November, the federal district court in Kansas also rejected a challenge to the rule brought by Market Synergy Group, an insurance distributor and marketing group of fixed index annuities. The plaintiffs had made similar arguments to those made in the D.C. case but also argued that DOL gave no notice or request comments regarding exclusion of the fixed income annuities. The court again ruled in favor of the DOL saying that the notice of proposed rulemaking was sufficiently broad to put the public on notice.

Opponents are awaiting decisions on the Minnesota case and the Texas case. Because the cases are in separate federal appellate circuits, there is also potential for varying appellate rulings that could delay a national standard and require a Supreme Court decision to clear up.

A federal appeals court recently blocked attempts by an annuities trade group to overturn the rule. A second effort by the Chamber of Commerce and securities and insurance industry trade groups to repeal it is ongoing.

Congressional steps indicate an effort to delay

Republican Representative Joe Wilson, from South Carolina introduced a bill(PDF) which would delay the implementation of the rule for two years. This is seen as a prelude to revision or repeal of the rule.

"This legislation will delay the implementation of this job-destroying rule, giving Congress and President-elect Donald Trump adequate time to re-evaluate this harmful regulation," Wilson said in a press release. "The Department of Labor’s fiduciary rule is one of the most costly, burdensome regulations to come from the Obama administration," Wilson said. 

The House Education and Workforce Committee, led by Chairwoman Virginia Foxx, a Republican from North Carolina said the rule tops its list of the most reckless and harmful regulations. Last year in an earlier effort to kill the rule Foxx said, "The Department of Labor’s fiduciary rule will significantly impact the ability of Americans to receive advice on how to save for retirement and make it more difficult for businesses, in particular small businesses, to establish retirement plans."

Republicans in the House of Representatives also added a provision to proposed legislation seeking to overhaul the Dodd-Frank financial reform act that would prohibit the fiduciary rule from taking effect until the Securities and Exchange Commission imposes a fiduciary standard on all retail brokerage accounts. Former SEC Chairman Mary Jo White, who stepped down with the changed in administrations, had expressed support for such a standard but there is no timetable for it. 

On the other side of the aisle, Democratic Senator Elizabeth Warren from Massachusetts said she sent a letter to 33 wealth management firms(PDF) because they have already spent millions to be compliant with the rule. The letter asked the firms if they planned to reverse the changes they had made to become compliant, including for some lowering fees on certain products, if the Trump administration delayed the rule

Representative Ann Wagner, a Republican from Missouri, and a critic of the rule, got a bill through Congress in 2015 to block the rule’s implementation only to be vetoed by Obama.

SEC guidance offered

The SEC's Division of Investment Management issued guidance in December to fund managers to help answer some questions surrounding procedural requirements related to mutual fund sales loads and share classes.

Many fund managers are contemplating changes to fund fee structures in order to level the compensation for the sale of fund shares in order to comply with the rule. 

The guidance explains a prospectus must: briefly describe the arrangements that result in breakpoints in, or elimination of, sales loads; identify each class of individuals or transactions to which the arrangements apply; and state each different breakpoint as a percentage of both the offering price and net amount invested.

The disclosure should "specifically identify each intermediary whose investors receive a sales load variation" and be presented "in a clear, concise and understandable manner, and should include tables, schedules, and charts where doing so would facilitate understanding."

Mutual funds have raised concerns that if a fund creates multiple scheduled variations, it could lead to lengthy prospectus disclosure that may be difficult for an investor to navigate and comprehend. The SEC states in the guidance, that "given the Commission and staff focus on improving disclosure, we would not object if lengthy sales load variation disclosure for multiple intermediaries is included in an appendix to the statutory prospectus."

With regards to offering new share classes that differ with respect to sales loads, transaction charges and certain ongoing expenses, the guidance explains what filings are needed, for instance, when adding a new class to an existing fund.

Fund companies are pursuing new "T" shares, or "transaction" shares, while others are issuing more traditional front load funds. The transaction share class has no set definition and can vary from fund to fund. 

The bottom line…the clock is ticking

Although the fiduciary rule in its current state appears to be in jeopardy, many brokerage firms have already announced new compensation and sales policies and competitive forces have driven fees and commissions lower industry-wide. Whether the announcement of a 60 day delay on Friday will lead to more delays and significant change remains to be seen. 

The trend toward lower fees, additional disclosure, and removing conflicts of interest in the area of retail investment advice is likely irreversible at this point. Furthermore, the massive investment by the largest firms in an effort to comply with the new rules, along with already announced changes to fee structures and sales practices may also make it difficult for firms to change or reverse course.

Firms, and especially compliance departments and their personnel, must be informed and prepared for all scenarios. Waiting or hoping on a favorable court victory or Congressional action is not a prudent plan of action for firms. The safest course is to be prepared for implementation on short notice regardless of whatever changes the new administration, courts, or Congress make to the rule.


Todd Ehret is a Senior Regulatory Intelligence Expert for Thomson Reuters Regulatory Intelligence. He has more than 20 years' experience in the financial industry where he held key positions in trading, operations, accounting, audit, and compliance for broker-dealers, asset managers, and hedge funds.