After earthquakes occur, everyone has to wait and see how the aftershocks ripple through the region. So it will be in the emerging era of President-elect Trump.

For advisors, the most important issue is the DOL rule, which requires advice on retirement accounts to be in clients’ best interest and is to go into effect in April. For the incoming administration, it is a low priority.

For two decades, the financial advice business has been evolving along two parallel tracks—a fiduciary path and a suitability standard. Until November 8, it appeared the fiduciary standard would supersede all others; now it’s not clear.

The DOL rule won’t fade into obscurity through benign neglect, but its fate is uncertain. Ripping up the rule isn’t as easy as one might think since, at the outset, enforcement really was transferred to the plaintiff’s bar, not DOL bureaucrats. While many expect the rule to be diluted at the least, some major financial companies, including Merrill Lynch, Commonwealth Financial Network and JP Morgan, are embracing it, having already spent millions to comply with the rule. Some firms probably intend to use the fiduciary standard for competitive marketing advantages, even if it is trashed.

The Trump earthquake will be more powerful in the broad economy. Trump has proposed slashing the top marginal tax rate from 39.6% to 33%. For all businesses, including LLCs and S corporations owned by many advisors and their clients, his original plan called for a maximum 15% tax rate, though he appears to have retreated on that proposal. If he does back off, owners of LLCs and other pass-through entities might consider becoming C corporations.

What actually happens is another matter. In early 2008, Obama and his advisors touted eliminating capital gains taxes for small businesses, naively advancing the idea as though small companies paid these taxes annually just like income and property taxes. The proposal never came to be.

One might assume that, as a businessman, Trump would have a better understanding of tax laws, but his pronouncements have changed continually. Still, with Republican control of both houses of Congress, it is safe to expect many tax rates will fall.

During the campaign, the president-elect said he would protect Social Security. However, in a book more than a decade ago, Trump backed partial privatization, and many of his aides currently support the concept. In his second term, President George W. Bush expended much of his political capital on this idea, to no avail.

For the last seven years, central banks around the world have tried and failed to rekindle inflation through monetary policy. It now appears that the new president will employ Keynesian fiscal policy, through tax cuts and big increases in infrastructure and defense spending, to jump-start an economy experiencing the weakest recovery since World War II. Until now, nothing else has worked.

Evan Simonoff
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