Feb 10, 2017

Trump executive order creates more uncertainty for retirement advisor fiduciary rule

As I explained in my June 2016 post, a Department of Labor policy, originally set to go into effect April 1, requires brokers giving advice on retirement accounts to put their clients' best interests above their own. For example, given the choice between two investments of equal benefit to the client, the advisor would have to steer the client into the investment with the lesser fees or smaller commissions, even though doing so is not to the broker's advantage. 

Many in the financial services industry have been fighting the rule, on the grounds that it cuts into profits, is a particular threat to small investment advisors and independent investment advisors, and will ultimately lead to less options for the public. The Department of Labor has been sued by several industry groups over the past two years. The most recent suit, brought by the Insured Retirement Institute, the Financial Markets Association, the Financial Services Roundtable and the U.S. Chamber of Commerce in the U.S. District Court for the Northern District of Texas, was settled in favor of the Department of Labor.

But that is far from the end of it! Not only are more lawsuits in the works, but on Feb. 3 the Trump Administration issued an executive order requiring the Department of Labor to review the fiduciary rule and assess if it should be kept, modified or scrapped. The Department of Labor says it is now weighing its legal options to delay implementation.

The President's action has evoked predictable criticism and praise. A spokesperson for the Consumer Federation of America notes: "The only reason to repeal the rule at this point is to give a multi-billion dollar handout to the industry paid for by working Americans and retirees. This is the exact opposite of what President Trump promised to do when he was on the campaign trail." On Capitol Hill, House Speaker Paul Ryan has said, "President Trump's action to delay the Obama Administration's fiduciary rule for further study is a wise one." 

All we know for sure is that the fiduciary rule will not be going into effect on April 1. I'll report additional developments as they arise.

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