The Trump administration has been vigorous in wanting to cut regulations. That’s not always a bad thing. But this suggested change really caught my eye.
President Trump has signed a memorandum which clears the way to eliminate the fiduciary rule for investment brokers. The fiduciary rule may sound like something boring but every person saving for retirement needs to know about it.
Under the fiduciary rule your investment advisor would be required to act in your best interest to manage your investments well rather than maximizing their income for themselves.
It sure seems like a commonsense rule and one that is in support of the little guy.
The investment industry wants the rule to go away so they are not subject to lawsuits from not investing money well on behalf of their clients.
Consumers need this rule to help maximize their tough fought investments and make them grow as much as possible so when they retire they have sufficient money to live on.
This concern about being able to afford retirement is not unwarranted. I was talking to a assisted living administrator recently and they mentioned the internal discussion in the parent company was what the future looked like as more seniors hit the need for assisted living without the ability to pay for it.
The future is uncertain for people set to retire in the future. If Social Security is privatized and investment advisors have no fiduciary duty to act in the best interest of the client, then who loses? My opinion is Mr. and Mrs Joe Main Street will take the financial hit and retire poorer.
Some companies, like Merrill Lynch had embraced the new rules that were supposed to go into effect in April. Other companies have issued statements like that from LPL Financial, “We also believe that a consistent approach to disclosure, compensation and mitigation of conflicts of interest is the right path forward for our industry.” – Source
According to Financial Advisor IQ, “The DOL [Department of Labor] fiduciary rule was scheduled to be phased in starting April 10 but might now be delayed indefinitely, pending further review. The rule expanded the definition of “investment advice fiduciary” under the Employee Retirement Income Security Act of 1974 to bind all financial service workers, including stockbrokers and insurance agents, who provide advice on retirement accounts to the ethical and legal status of fiduciaries.”
The implementation of the fiduciary rule is a big deal for small town America hardworking investors. “A 2015 Obama administration study concluded that “conflicted investment advice” has been reducing the return on retirement savings by around one percentage point, costing ordinary Americans around $17 billion each year. Where has that $17 billion been going? Largely into the pockets of various financial-industry players.” – Source
So What Can You Do Now?
As with everything else in this modern world the only person looking out for you, is you. So what you can do is have an open conversation with your investment advisor or investment company and ask them for their position on acting in your best interest. Then, ask them to show you where it says that in your client agreement.
The desire for investment advisors to lookout for the best interest of their clients is not liberal overreach, it’s just what every person expects. Afterall, who wants to invest their hard earned money with someone who is going to line their pockets will making you less?
Stranger Things
To make the potential actions on the elimination of the fiduciary rule even more perplexing is the published remarks for an executive order that President Trump never signed. The White House says:
“For Immediate Release
February 03, 2017
Remarks by President Trump at Signing of Executive Order on Fiduciary Rule
Oval Office
1:18 P.M. EST
THE PRESIDENT: Today we’re signing core principles for regulating the United States financial system. It doesn’t get much better than that, right?
THE PRESIDENT: Would you like to —
MS. WAGNER: It’s my baby. (Laughter.)
THE PRESIDENT: Why don’t you explain this.
MS. WAGNER: What we’re doing is we are returning to the American people, low- and middle- income investors, and retirees, their control of their own retirement savings. This is about Main Street, and it’s been a labor of love for me for over four years as chairman. And I have had — this is a big day, a big moment for Americans. (Inaudible.)
THE PRESIDENT: And she means that so much.
(Executive order is signed.)
THE PRESIDENT: Chairman, I think we should hand the pen to this very special person.
PARTICIPANT: Absolutely, Mr. President. She earned it. She earned it.
THE PRESIDENT: Thank you.
MS. WAGNER: Thank you. I’m grateful.
Q Mr. President, do you have anything to say about the decision to make the Iran — should they be expecting more?
THE PRESIDENT: They’re not behaving.
END
1:20 P.M. EST” – Source
Let’s just say for a moment that the White House published this event erroneously and what was actually signed was something other than an executive order. I’m still stuck on how the elimination of rules to act in the best interest of the average investor can even begin to match the statement, “What we’re doing is we are returning to the American people, low- and middle- income investors, and retirees, their control of their own retirement savings.”
You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.
Do you have a question you'd like to ask me for free? Go ahead and click here.
If you have a credit or debt question you’d like to ask just use the online form. I’m happy to help you totally for free.
- Plastic Pandemic: US Credit Card Debt Surges Nearly 20% in Q1 2021! - May 12, 2023
- The IRS Resumes Collections Notices: What You Need to Know Before It’s Too Late - May 12, 2023
- How Can I Deal With Payday Loan Debt? - May 12, 2023
Fabulous primer on what’s happening and why it matters! You explained how people lose money without even feeling it, except maybe at retirement they wonder why their nest egg isn’t bigger.
But let’s be straight: No “fiduciary rule” can achieve complete disinterest by a broker. They are human beings and they know what makes them commissions, and they know which in-house products they need to push to earn that bonus trip to Hawaii or Tahiti along with the other “big sellers.”
And then there’s the problem of determining that the broker actively thought he was acting against the interest of the client. Hard to say, since every one of his decisions is a judgement call anyway. Who’s to say he didn’t believe the in-house Pacific Rim product wasn’t better than the lower-commission version offered elsewhere.
Sure, there are glaring acts of self-interest that can be clearly shown to violate fiduciary rules, but really, the regulation was more like a vague threat to brokers. They knew they COULD get stung by it, and possibly face license sanction (minor violation) or prosecution (typically if the $$ are higher), so the idea was to keep them scared and staying on the safer side of wherever they believed the “line” to be. At minimum, if there was an inquiry, it would be a hassle, and would show up on a FINRA report if future (or current) clients checked them out (few ever do).
So it was this vague kind of threat, open to interpretation of investment peers, regulators, prosecutors, judges, and juries. So no matter what a broker did, he wanted to make it LOOK like it was a disinterested (to himself) play. And sometimes that actually hurts clients. Sometimes what profits a broker makes a client more than he would have otherwise, but with that fiduciary regulation active, brokers were afraid to make such moves. And frankly, if I have a good broker, I’d like him to take a chunk of my portfolio and have it mimic his own personal investments. Wonder if they’ll now have the guts to do that again?
ALL THAT SAID, I STILL AGREE WITH YOU…
Most of the time, for most investors, this was a good rule, and while its repeal won’t open floodgates instantly, it will make investors generally less safe from harm.
The Pump-and-Dump crooksters are certainly popping Champagne corks right now.
Again, really enjoyed this article, Steve.