Fiduciary rule, Dodd-Frank are in Republicans’ sights.
The outcome of the 2016 U.S. election caught many commentators by surprise and has greatly reduced their eagerness to make predictions. Indeed, Donald Trump was unpredictable during the campaign and remained so as he assembled his Cabinet and administration.
Nonetheless, there is unified government in Washington for the first time in six years, with Republicans controlling the Senate, House, and Executive Branch. The last time one party controlled all three branches of government, from 2008 to 2010, when Democrats held the power, it produced a lot of new policy: a large stimulus bill, an overhaul of the nation’s healthcare system, and a major financial reforms package.
While it remains to be seen how closely Trump’s policy preferences will align with congressional Republicans’ proposals and how well they can work together, here are some key policy areas that we are monitoring that affect investors.
DOL’s Conflict-of-Interest Rule
The biggest question in retirement and advice circles is what will happen with the Department of Labor’s conflict-of-interest rule. The rule, which is applicable April 10, aims to ensure that professionals giving investment advice to retirement plans and plan participants act in the best interest of participants. One of the key provisions of the rule is that advisors working with IRAs will now have to follow a fiduciary standard and enter into a “best-interest contract” with their clients.
Although there has been a lot of chatter about the rule being reversed or modified, the incoming administration (as of the time of writing) has not been clear on what it intends to do. Reversing the rule would require a lot of effort from Labor Department administrators and bureaucrats, and the new administration may wish to focus on other priorities.
We’ll be carefully monitoring developments, but we also think that many of the long-term trends toward lower-cost products and fee-based advice are going to continue no matter the fate of the fiduciary rule. Indeed, we think that the rule has spurred the industry to accelerate rationalizing fund lineups and modernizing its approach to serving investors and that these trends will likely continue regardless what the Trump administration does with the rule.
An Expanded Triple Tax-Privileged Investment Account?
Republicans have been running on a platform of repealing the Affordable Care Act for six years, and now they have their chance, although there will be pressure to keep some of the popular provisions intact. Republican proposals to replace Obamacare vary quite a bit, but a consistent theme is expanding health savings accounts, or HSAs.
HSAs offer the most powerful incentives in the tax code right now: Contributions are tax-free, investment growth is tax-free, and withdrawals are tax-free if they are used for medical expenses, which can include Medicare premiums. If someone were to save too much in an HSA, then withdrawals after age 65 are taxed at marginal tax rates, just like traditional IRA or 401(k) withdrawals.