Claire from Ann Arbor, MI asks: Mitch, I learned recently about the Department of Labor ruling that addressed conflicts of interest in retirement advice. The ruling said that all advisors are required to act in their client’s best interests. Will this ruling survive the Trump presidency?
Thanks for your question. I think the short answer is “most likely” that the fiduciary ruling will remain in effect, and I’ll explain why in a moment. Let me first explain what this Department of Labor ruling actually is for readers who may not be aware of it.
In April of this year, the U.S. Department of Labor finalized what they called the “rule to address conflicts of interest in retirement advice.” The ruling left many advisors scrambling, particularly those who come from the insurance industry (selling annuities in retirement plans would become more difficult with the ruling). Fidelity actually conducted a survey on this, and of the 485 financial advisors they questioned, 73% were concerned the rule will have a negative impact on the way they do business.
In short, the rule says that any advisor/broker who handles retirement accounts must adhere to the “fiduciary standard.” That means that no matter what the product involved—stocks, annuities, mutual funds, separately managed accounts, or commission products—the advisor must by law put the client’s best interests before their own. Before the law, certain brokers and types of advisors could recommend a product as long as it was “suitable” for their clients, operating under what is known as the “suitability standard.” That meant they could recommend proprietary products that earned them a better commission, as long as it was suitable for the client.
So, will the new ruling be repealed under the Trump Administration? It does not appear likely, though there are mixed signals. On the one hand, the rule was finalized in April and became effective in June of 2016, with a compliance date in April 2017. So, it may be a bit too far along with new compliance systems in place to outright repeal. It is also dubious whether the industry would even lobby to overturn the rule since that would mean having to go back to square one and reconfigure their compliance systems and product lineups this far into the implementation process. In all, it is arguably very low on Trump’s current list of policy priorities.
On the other hand, some of Trump’s closest economic/financial advisors have expressed strong opposition to the ruling, so repeal could certainly be on the table. But, we would not expect to see it addressed in the first year.
For investors, we believe it makes sense to work with financial advisors who operate under the fiduciary standard – that way you know you have someone working with your best interests in mind. In that sense, it would not matter if President-elect Trump repealed the law or not, since Registered Investment Advisors (like Zacks Investment Management) already operate under the fiduciary standard.
As we discuss potential opposition to the Fiduciary Standard, many investors may be wondering how they can most effectively select a money manager and ensure that they have their best interests in mind. To help you do this, we would like to offer you our guide, “What to Look for in a Money Manager.” This guide is filled with tough questions every investor should ask any prospective investment manager. Download it today by clicking on the link below:
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