Although the Trump administration’s review of the U.S. Department of Labor’s (DOL) fiduciary rule could eventually lead to reduced costs in the investment industry, the business is continuing to adapt to the rule despite the increased uncertainty, according to a new report from Moody’s Investors Service Inc.
The order to review the regulation “does nothing” to change the rule on its own, so there are no immediate credit ratings implications, the Moody’s report states: “However, it puts the rule’s fate into question and raises the possibility of an eventual repeal, which would benefit exposed issuers by reducing litigation risk and incremental costs of compliance.”
Yet, the credit-rating agency’s report also notes that many financial services companies have already made changes to comply with the rule, or are in the process of making those changes.
“Pricing for investment products and variable and fixed-indexed annuities has been revised; platforms have been changed and appropriate disclosures devised; and agents and call centers have been trained. Some companies switched to the new fee-based products this January,” the report states.
Moody’s expects firms will continue to take steps to comply with the regulation until Congress or the DOL take more definitive action.
“Any changes to the regulation that arise from the administration’s re-evaluation during the review period would be subject to the official notice and comment rulemaking process — a process that can take a long time and create even more uncertainty,” the report says.
“Regardless of the fate of this latest iteration of the fiduciary rule, it has already had an impact on the retirement industry,” the report notes. “[Pension] plan sponsors facing lower funding ratios and declining return assumptions [and prospects] are more sensitive to fees than ever before and are more focused on outcome-oriented products as well as on choosing providers that can deliver, given a heightened risk of litigation from plan participants.”