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Fiduciary Rule Protecting Retirement Savers Survives For Now

Tobie Stanger

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An Obama-era rule aimed at protecting retirement savers will go into effect next month in spite of a Trump administration delay that appeared likely to derail it.

The Fiduciary Rule requires that retirement financial advisers act in their clients' best interest. An adviser adhering to a fiduciary standard would recommend, say, investing in low-cost mutual funds for a fixed fee instead of comparable funds that charge more in commissions. He would have to promise no hidden fees that might surprise the investor later. And if he had any conflicts of interest that could sway his judgment about which investment is best for the investor—say, a vacation in Maui he'd get for selling you a particular product—he'd be required to mention those.

In a Wall Street Journal op-ed Monday, Labor Secretary Alexander Acosta said he would allow the rule to go into effect June 9, but suggested that he might make changes later.

"Trust in Americans’ ability to decide what is best for them and their families leads us to the conclusion that we should seek public comment on how to revise this rule," Acosta wrote.

The Obama administration estimated that the rule would save Americans $17 billion a year in unnecessary and hidden investment fees.

Currently, retirement savers have the option of turning to commission-based advisers who may not be fiduciaries. These advisers are only required to make investments on your behalf that are "suitable" for your needs. That means that while the investments your adviser chooses could be appropriate for your financial goals, you could end up paying more money in commissions and other fees than if you had hired a fiduciary.

Phase-in of the Fiduciary Rule was to begin April 9. But earlier this year President Trump issued an executive order calling for a review period for the regulation, to end on June 9. The regulation already had been the subject of more than six years of review, and hundreds of public comments from both supporters and opponents.

"We are encouraged by today’s announcement, but we urge the Department of Labor to resist industry-led efforts to diminish or weaken the rule and the important protections it provides," said Pamela Banks, senior policy counsel for Consumers Union, the policy and mobilization arm of Consumer Reports. 

Micah Hauptman, the Consumer Federation of America's financial services counsel, expressed concern that Acosta intends to gut the regulation eventually.

“His comments on the substance of the rule—developed without any meaningful consultation with rule supporters—suggest that Secretary Acosta has pre-judged the outcome of the reconsideration and may plan to gut core provisions of the rule that are essential to its effectiveness,” Hauptman said.

The fiduciary rule only affects advice on retirement accounts such as 401(k)s and individual retirement accounts, as well as insurance products that are used for retirement, such as annuities. 

The rule phases in slowly and doesn't become fully effective until January 1, 2018. The Labor Department is tasked with implementing the rule in its role as the regulator of Americans' pensions and other retirement accounts.

Critics in the financial industry have long fought the fiduciary rule, contending that it leaves consumers with fewer investment choices and could saddle them with higher costs if they had to move away from commission-based investments. Tuesday those opponents urged Acosta to move quickly to gut the rule. 

"We encourage Secretary Acosta, President Trump, and members of Congress to heed the mounting evidence that the fiduciary rule is limiting investment choice and imposing new costs on middle-class and lower-income savers," John Berlau, financial policy expert at the Competitive Enterprise Institute, a Washington, D.C.-based, libertarian group, said in a statement.

But consumers already have reaped collateral benefits from the fiduciary rule. In response to the rule and to client demand for low-cost investments, numerous investment companies have lowered fees and dropped minimum investments required on their mutual funds and exchange-traded funds.

In January, Bloomberg reported that Morgan Stanley was lowering commissions for trades involving stocks and exchange-traded funds and improving customer disclosures, among other changes. Fidelity Investments, Charles Schwab, and BlackRock are also among those large companies that have reduced fees for retirement investors. 

2016 analysis by the President’s Council of Economic Advisers showed that a typical working person who got non-fiduciary, "conflicted advice" when rolling over a 401(k) balance to an IRA at age 45 could lose about 17 percent from that account because of fees by the time she reached the age of 65. A $100,000 rollover, with the potential to grow to $216,000 in those 20 years would instead grow to just $179,000.



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