New Investment Fiduciary Rule explained by professional forex trading experts the “ForexSQ” FX trading team.
What Are New Investment Fiduciary Rule Meaning
The U.S. Department of Labor’s “fiduciary rule” that asks brokers to avoid conflicts of interest when giving retirement advice has been through more gyrations over the last year than a limbo dancer in on a see-saw in an earthquake.
Hailed by the Obama administration as a revolution in consumer protection, it was derided in the early days of the Trump administration. It’s been the subject of court cases that have involved the son of a Supreme Court justice who’s fought it, a red-state judge who’s upheld it, and much speculation as to when it would finally take effect—if ever.
Now, financial professionals and the clients they represent finally have an answer: The dawn of the fiduciary rule age is just days away.
In a Wall Street Journal editorial published May 22, Department of Labor Secretary Alexander Acosta announced that the rule will take effect on June 9. That came as surprise and even a shock to some, as the Trump administration had delayed its original implementation on April 10, and the rule appeared to be on a downward trajectory.
Yet even that June 9 green flag has shades of yellow in it, as the rule is technically still under review—meaning that at a later date, it could be revised, watered down or scrapped altogether.
Acosta stated that “although courts have upheld this rule as consistent with Congress’s delegated authority, the fiduciary rule as written may not align with [the administration’s] deregulatory goals.”
Here’s how professor Jamie Hopkins, retirement income program co-director at The American College for Financial Services in Bryn Mar, Pa., translates that language: “The tone from Acosta is that deregulation is still coming, but they [Congress and the administration] have to follow the law and rulemaking process.”
So, what should people expect? “Between June 9 and Jan. 1, 2018, it is expected that the DOL will move forward with new rulemaking to overturn or at least modify the current fiduciary rule,” Hopkins says. “Furthermore, many expect the full implementation date of Jan. 1, 2018 to be postponed.”
In a word: Huh?
So what is this “fiduciary standard,” exactly? First, let’s start with that pesky jargon term “fiduciary,” which you probably last used when NPR’s Puzzle Master Will Shortz challenged you to find a rhyme for “pituitary.”
Simply put, a fiduciary is a person or organization that owes you the duties of good faith and trust. So if a financial advisor has what’s known as a “fiduciary duty,” that means they have to act in your best interest: that “trust me” actually means more than mere words.
That’s huge because in financial services, a great many people will try to sell you a great many things—and in a great many cases with more of an eye on how much they make than how much you’ll make.
So in large part, the fiduciary rule is aimed at excess fees. Groups such as the Consumer Federation of America have defended the rule as a blow against what they’ve characterized as a huge moneymaker for financial professionals.
The go-ahead move comes as Donald Trump has been beset by woes on all sides in the wake of his firing of FBI chief James Comey and the swirl of controversy surrounding it. Meanwhile, he continues to grapple with a monolithic legislative agenda not entirely of his making. On the front burner as of present: a new federal budget, changes to the Affordable Care Act and tax reform.
Compared to those A-list priorities, the fiduciary rule is a fly in the ointment.
And yet under less turbulent circumstances, the fiduciary rule would dominate the dialogue on Capitol Hill. Intrigue began after the surprise signing of a presidential memorandum to indefinitely suspend the rule’s implementation. The message was clear, as reflected in this TIME magazine headline: “Trump wants to kill the fiduciary rule.”
But less than a week later, U.S. District Court Chief Judge Barbara Lynn (working in Northern District of Texas) fired off an 81-page ruling to uphold the Obama-era rule. How bad was it for the White House? CNBC described Lynn’s decision as “stinging.” (Lynn was appointed to her post under President Bill Clinton.)
Could Acosta’s action spell the end of the dogfight? Hardly. For starters, the financial services industry is not known to either back down from a fight or suffer from a lack of money or clout to conduct it.
Gibson Dunn & Crutcher attorney Eugene Scalia—son of the late Supreme Court Justice Antonin Scalia—has represented business groups in the fight to kill the rule.
And as you might expect from his family lineage, Scalia the younger has a reputation for winning legal battles against regulation on behalf of Wall Street. If any case involving the fiduciary ultimately goes to the Supreme Court, Scalia could benefit from the legal equivalent of close friends in high places.
The rule is also vulnerable because it remains so new to the books—it was just unveiled in April 2016. Thus there’s no track record for it whatsoever, and negative consequences for financial advisors could throw the whole the implementation process into a tailspin.
That noted, “It is strange to me that after nearly eight years of wrangling over the development of this rule that it would not be implemented,” says Keith Baker, former CFO of Enhance Financial Services Group Inc. and now a program coordinator for mortgage banking and financial services at North Lake College in Irving, Texas. “That just means that the status quo for financial advisors—especially those that sell on commission or fee-based compensation. Life will just go on as it has.”
Baker points out that the Certified Financial Planner Board supports the changes. A statement on the CFP Board website states: “Research shows that the costs to broker-dealers to implement a fiduciary standard would be minimal, and that broker-dealers and investment advisers who provide financial services under a fiduciary standard experience stronger asset and revenue growth than those under a suitability standard.”
The effort to hide fees “encourages development of products that are needlessly complex and opaque,” the Consumer Federation of America writes in an eight-page paper outlining the advantages of the DOL rule. “After all, the easiest way to hide the higher costs is in a product that is too complex and opaque for the typical investor to understand.”
In a Tweet directed at the DOL, CFA director of investor protection Barbara Roper summed up her feelings in less than 140 characters: “We applaud @SecretaryAcosta for recognizing that respect for rule of law demands that #DOL rule be implemented.”
ComplianceX (a website that covers compliance and regulation issues for the financial services industry) also reports that Dennis Kelleher, president of advocacy group Better Markets, has praised the move. “We are confident that any data-driven, robust analysis that fairly considers the facts will prove again that Americans saving for retirement deserve to have their best interests put above their financial advisers’ economic interests.”
The fiduciary rule also comes in the wake of a February 2016 report from the White House Council of Economic Advisors, which concluded that fees and conflicted advice cost retirement investors about $17 billion annually. That’s more than the yearly gross domestic products of Iceland, Nicaragua or Senegal.
So what happens to the fiduciary rule now? Look for any or all of the following to happen in the next few months: more legal challenges; more executive orders (Trump is not exactly known for sticking to his story); a call for change signaled by statements from the financial services community; confusion in some other corners of the industry; and a continued push from consumer groups to let the rule stand even as it gets off the ground.
Hopkins acknowledges a pair of options that still remain possible, if not entirely plausible for the time being. “While it appears all but certain June 9 will bring forth a new era in retirement planning under a fiduciary rule, there are still two potential ways the rule could get delayed.”
Here’s how: “First, the courts could still delay the rule. However, this seems very unlikely as most courts have found in favor of the rule so far. Secondly, Congress and the president could sign a bill into law delaying or removing the fiduciary rule. However, this also seems highly unlikely to be accomplished in just about two and a half weeks as health care and tax reform would appear to be higher priorities and they still have not made it through Congress to the President’s desk.”
Yet no matter the result, it’s possible that another outcome could outflank all of the above: voluntary compliance to the rule, whether it stands, falls or hangs in limbo: voluntary compliance.
“Many companies have moved forward and prepared for the rule back in 2016 when it was originally passed,” Hopkins notes. “And many companies and financial advisors have delayed acting in hopes the rule would never see the light of day.”
Granted, the fiduciary rule could still sundown at some point. “But following Acosta’s comments, it is imperative for financial service firms and financial advisors to make sure they are compliant come June 9,” Hopkins cautions. “Not being compliant with this rule and showing no good faith effort to comply could basically put you out of business.”
Paul Pagnato, founder at PagnatoKarp, points out that prior to the rule’s stagnation, firms such as Merrill Lynch released ads saying that they agreed “wholeheartedly” with the ruling and that they will “not collect commissions for any of these personal retirement accounts”.
Pagnato, who worked at Merrill Lynch for 19 years and managed an office of over $1 billion in assets, has an insider’s glimpse into how the industry’s big dogs will cooperate with the rule. For his own part, he has chosen to follow what he calls True Fiduciary practices, which eliminates the charging of commissions from any accounts.
New Investment Fiduciary Rule Conclusion
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