By Chris Adams
Whither the fiduciary rule?
In the waning days of the Obama administration, the Department of Labor moved to implement the “fiduciary rule,” which sought to protect savings held in retirement accounts such as 401(k)s.
The rule had been pushed for years by consumer advocates – and just as strenuously opposed by the financial services industry. Both sides agreed it would dramatically change the way financial advisors interacted with their customers; the advocacy community sees it as a protection, the financial industry as a stifling imposition.
At its core, the rule is fairly simple: A financial planner should be operating as a “fiduciary” – meaning, they are acting in the client’s best interest. The alternative is to operate under the “suitability rule,” which means a financial adviser is offering things that might be suitable – although not the best thing going – for a particular client.
In a session with National Press Foundation fellows, Micah Hauptman, financial services counsel for the Consumer Federation of America, described how the rule came about and how the Trump administration is working to scuttle it.
Hauptman said consumers have little understanding of the complicated financial products they buy, and financial advisers aren’t working to inform them.
“Investors already expect their advisers act in their best interests,” Hauptman said. “They’re troubled when they find out that’s not the case.”
The fiduciary rule was spurred by evidence that consumers were being harmed. But the financial services industry opposed the rule, filing six legal challenges to stop it. The Republican-controlled Congress is also trying to stop it, and the Trump administration has delayed it. In February 2017, a presidential memorandum told the Department of Labor to reexamine the rule, delayed initial implementation of the rule by 60 days and proposed to delay its full implementation by 18 months. As of October 2017, parts of the rules are in place but a mechanism to enforce it isn’t – and there’s no assurance it will ever be.
Hauptman – who supports the rule – said that no matter what happens in Washington, many firms in the financial services industry are changing their products to better act in clients’ interests. In addition, some mutual funds are being marketed with lower sales fees and without the surrender charges that lock people into funds they might want to drop.