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How the Next President Can Impact Ordinary Investors

Major reforms may be unlikely, but through appointments and executive actions the next administration can still have an impact on investors.

While the next president may not find enough Congressional cooperation to tackle major initiatives such as tax reform or adjusting entitlement programs, there are many actions the president can take on his or her own, and many of these will affect ordinary investors. With the election almost here, it's worth taking a step back to look at how the next president's decisions will matter for investors--a group that includes millions of ordinary Americans saving for retirement.

As we all learned in high school civics, our system of government has checks and balances, and the next president will have to work with the legislature to pursue his or her agenda. Legislative action has become more difficult in recent years, as the country has entered a period of extreme polarization. Indeed, the last Congress was one of the least productive in modern times. As a result, there has been a significant shift to policymaking through executive actions--steps the executive branch can take on its own without Congress. For example, the Department of Labor's conflict of interest rule for retirement investment advice did not require (or get) Congressional approval. Of course, the president's tool kit is not unlimited, and many of the actions the president can take on his or her own take time and political capital--even if they don't require Congress.

Key Appointments
One of the critical things the president does is appoint personnel. As Sen. Elizabeth Warren has become fond of pointing out, "personnel is policy." What she correctly hits on is that executive agencies and independent commissions have enormous latitude in shaping public policy by making rules that interpret and implement the laws Congress passes, and in how they enforce laws. The next president will have to make appointments to the Securities and Exchange Commission (which has two of five seats vacant right now), the Consumer Finance Protection Bureau, the Federal Reserve, Treasury, and the Department of Labor among others. Each of these appointments gives the secretaries, assistant secretaries, commissioners, and directors major latitude in interpreting key laws such as Dodd-Frank, and the Employee Retirement Income Security Act.

Will the next president fill these positions with people who are sympathetic to aggressive enforcement actions or not? Will these appointees pursue an aggressive rulemaking agenda to protect investors, or assume a more laissez faire posture? It seems likely that a Clinton administration would need to make appointments that satisfy the left flank of the Democratic party, but her history suggests she would not want to appoint people who cannot listen and respond to businesses' concerns. Donald Trump's approach is much harder to speculate about because his public statements on policy are sparse and sometimes contradictory. Republicans would of course prefer a more laissez faire approach, but he would owe less to his party than any presidential winner in history since he would have won the nomination and presidency without much help from many party standard-bearers.

Appointments for important administrative posts are sometimes contentious, but it may well be easier for the next president to deliver policy by putting the personnel in place that he or she wants. That's because filibuster reform last session made it impossible for the minority party to block appointments with less than a majority of votes--except for the Supreme Court. So if the same political party controls the presidency and the majority in the Senate (which must consent to presidential appointments), it will be easier than it has been for the president to align his or her staffing decisions with his or her vision. (Of course, parties may not always agree internally, and in fact, President Barack Obama's SEC appointments have been held up by Democrats, not Republicans. Nothing is easy in our political system by design.)

This election might also mean a more gradual transition to new personnel--if Hillary Clinton wins. She would be the first president since 1989 to take over from a president of the same party after an election (as opposed to resignation or death of the president), and the first Democrat to do so in 150 years. While there is no question that a President Clinton would want to put her preferred personnel in place, she may also hold over many of the current Obama appointees, at least at first. Indeed, George H.W. Bush followed this model, retaining many of President Ronald Reagan's appointees when he took office in 1989.

Executive Authority: Orders and Rulemaking
Executive orders, which are changes to internal executive branch policy, do not require a public comment period are far easier to issue, but generally have much narrower scope. And they can be easily reversed by a future president. In contrast, most of the major executive actions the Obama administration has taken (since 2010 when Democrats lost control of Congress) have been through rulemaking--a process that usually requires agencies to go through a lengthy, formal process wherein the agencies lay out their rational for issuing a new rule, take public comments, and then demonstrate that they have analyzed these comments as they create a final rule. Of course, administrations will often seek input from stakeholders before issuing executive orders, but they do not have to follow a formal process. This means it is harder to issue these rules than executive orders, but it is also harder for a future president to reverse them since it means his or her administrative officials have to spend time reversing previous rulemaking (and justifying this decision so it is not arbitrary or capricious) rather than working on the new president's priorities.

From an individual investor's perspective, the conflict of interest rule has been the most immediately important executive action. It means that when investors seek financial advisors' help in managing retirement assets in IRAs, their financial advisor will have to act in their best interest. Furthermore, many broker-dealers and registered investment advisors will likely adopt this standard for nonretirement assets as well, leading to a sweeping change in the way investors get advice. But, the DOL has also taken other notable actions, such as issuing guidance to help local governments offer different kinds of retirement services to workers in the private sector. Treasury took a major action on its own, creating the myRA accounts (a low-cost IRA invested in U.S. government debt) using existing authority, although it did not require a public comment for technical reasons.

The next president will need to decide whether he or she will continue and expand on these policies, or shift focus to something else, or even make an effort to reverse them. Clinton has signaled she would like a continuation of Obama’s policies, and she considered Labor Secretary Thomas Perez for her vice president, so she respects his approach at the Department of Labor. Trump is again hard to read, but he has signaled he will undo Obama's executive actions numerous times. Still the devil is in the details, since undoing a rule will require him to abandon pursuing an agenda beyond undoing the previous president's work--at least for some time. Still, he can direct his secretary of labor to shape the conflict of interest rule (and other rules) through interpretive guidance or through enforcement strategies.