Blowing Down That Fiduciary RuleIssue 02-13-17 |
Over the past decade, Americans investing for retirement have fled from high-priced commission-based investment products to low-cost index and exchange traded funds. Cutting further into the revenue stream for those in the investment advice business, the U.S. Department of Labor's fiduciary rule, set to go into effect in April, will require financial advisers to put their clients’ interests first when handling retirement accounts. The rule also makes it easier for investors to sue financial companies. Many on Wall Street hate it.
On Feb. 3, President Trump issued a memo ordering the Department of Labor to reconsider the rule. The director of Trump’s National Economic Council said the fiduciary requirement limits investor choice and compared it to a menu with “only healthy food.” Press Secretary Sean Spicer said in a news conference that “the rule is a solution in search of a problem.” The problem the Obama administration had pushed the Labor Department to solve was conflicted investment advice. It argued many brokers and advisers act more like salespeople and have financial incentives to recommend expensive, inferior products to clients who don’t know the difference.
Eliminating the fiduciary rule may slow the trend away from high-cost services, but it's unlikely to reverse it. The U.S. has always had two markets for investment products, one for clients who know the questions to ask and another for novices. Without the fiduciary rule, the difference between them may become even more stark.