President Donald Trump signed two executive actions Friday intended to loosen the regulatory burden on banks and certain investment advisers.
The first action sets the framework for a review of the post-recession Dodd-Frank Act, which was intended to prevent the practices that led to the 2008 financial crisis. Critics, including several bankers in the midstate, have condemned the legislation for placing what they feel are unnecessary burdens on financial institutions while doing little to change the Wall Street attitudes that led to the recession.
Trump’s order Friday directs the Treasury to create a plan to amend those rules. The order will not have an immediate effect on banks, and is unlikely to lead to a complete replacement of Dodd-Frank, which would require an act of Congress. It will, however, examine areas where Trump can start to make changes through actions like putting his own people at the head of regulatory agencies, CNN reported.
The second action asks the Department of Labor to consider halting the so-called “fiduciary rule” that was set to go into effect in April. The rule would require brokers and advisers of certain retirement accounts to act in the best interest of their clients, thereby eliminating conflicts of interest that can arise out of commission-based compensation.
Community bankers hope for relief
Trump’s action to review Dodd-Frank led to a strong day for financial stocks Friday as bankers across the country largely heralded the move as a step toward decreased regulatory burden.
That sentiment was also present among some bankers in the midstate, who welcomed any level of relief.
“Anything that can be done to review this policy is a good thing for the economy,” said Nick DiFrancesco, president and CEO of the Pennsylvania Association of Community Bankers.
Although DiFrancesco generally agrees with the spirit of the Dodd-Frank Act – preventing big banks from causing another recession – he feels pro-Dodd-Frank legislators have ignored the act’s fallout on the nation’s smallest banks.
“They threw a grenade and blew up a bunch of stuff that was never the intent of the law,” he said.
Many of his association’s members have had to hire additional compliance officers since Dodd-Frank went into play, he said, while others have hesitated to do certain kinds of business out of uncertainty about the act’s reach.
Some proponents of the act have argued that legislators need to strengthen it, not gut it, in order to truly protect consumers from unscrupulous banking practices. Easing the burden on community banks, however, has generally proven a popular concept on both sides of the aisle, with even Democratic nominee Hillary Clinton including it as part of her campaign platform.
Parts of the Dodd-Frank Act are specific to larger institutions, with banks receiving increased scrutiny at the $10 billion asset mark, and even more after the $50 billion mark.
Still, many parts of the act apply evenly to all banks across the board, making it difficult for smaller banks to compete, said Rory Ritrievi, president and CEO of Millersburg-based Mid Penn Bank.
Like many other bankers, Ritrievi is waiting to see just how far Trump will be able to go to change it.
Many advisers already using fiduciary model
The Department of Labor “fiduciary rule” would affect about $3 trillion in retirement assets, according to research firm Morningstar Inc.
Some critics of the rule, including White House National Economic Council Director Gary Cohn, have said it would limit consumer choice and force advisers to only offer retirement products with the lowest fees, regardless of whether those products were the best ones for clients. But many retirement advisers have already gravitated toward the fiduciary model as a matter of best practice.
Firms like Harrisburg-based Roof Advisory Group and Susquehanna Township-based Conrad Siegel Investment Advisors are among those that already act as fiduciaries. Because advisers don’t work off of commissions, they can make investments that are in clients’ best interests – a concept, representatives from both firms believe, that would be best practice for anyone in the industry.
“We think philosophically, it’s in the best interest of the people,” said Tom Reese, a partner and consulting actuary with Conrad Siegel.
Some companies that do not act as fiduciaries now have been planning to move in that direction regardless of the Department of Labor’s rule. That was the case for Univest‘s wealth management practice, said Kevin Norris, the division’s president.
Univest has a mix of fiduciary and broker-dealer arrangement, but Norris believes all advisers will have to act as fiduciaries at some point down the road. That, he said, is far from a bad thing – but forcing advisers to make that switch by April was.
Trump’s action, he said, “just give us a little more breathing room to prepare for the parts of the rule that we think will be effective.”