Financial advice: Is the ‘fiduciary rule’ doomed?
“It’s a simple enough concept. A financial adviser should be legally required to put their clients’ best interests ahead of their own,” said Rachael Levy in BusinessInsider.com. But it’s not the law, and an Obama administration rule that would require exactly that could be in jeopardy now that President Trump is calling the shots. The so-called fiduciary rule, set to take effect in April, would require retirement advisers to act in the best interest of their clients, rather than steering them toward more expensive investments that might earn the advisers a better commission. A White House Council of Economic Advisers report in 2015 found that “conflicted” advice costs investors roughly $17 billion a year. But many on Wall Street, including top Trump adviser Anthony Scaramucci, have criticized the new rule, saying it would drive up compliance costs for firms—and, therefore, for their clients. Trump has also railed against government regulations, increasing expectations that the nascent fiduciary rule “won’t survive.”
“Whatever happens to the fiduciary rule, you should still know how your financial adviser is compensated,” said Tom Anderson in CNBC.com. Luckily, all you have to do is ask. You’re entitled to know whether your adviser is a fiduciary, legally obligated to act in your best interest, and what, if any, commissions he or she receives for steering clients toward specific investment vehicles. “Good advisers should provide you with that information in writing and be open to having a frank discussion about how they’re paid.” It shouldn’t be too hard to find a bona fide fiduciary, said John Wasik in The New York Times. The number of fee-only personal financial planners has been growing steadily. These advisers charge hourly or flat rates instead of steering investors to specific products, and they often favor low-cost index funds. As a result, they’re more likely “to provide information that is tightly aligned with clients’ financial goals.”
Even if the Trump administration ultimately guts the fiduciary rule, the financial planning industry has already been altered by it, said Ben Steverman in Bloomberg.com. Wall Street has spent millions of dollars over the past two years “overhauling procedures and creating new products” to comply with new regulations on financial advice. But “presidential attention didn’t just change the rules. It helped change how investors shop for financial help.” The spotlight on the fiduciary rule gave journalists the opportunity to write lots of stories about “conflicted advisers and high fees.” Comedian John Oliver even devoted an episode of his HBO show Last Week Tonight to ripping nonfiduciary advisers. Finally, the public seems to understand what personal finance writers have been harping on for years: “that high fees and conflicts of interest are dang erous for anyone saving for retirement.” At this point, “even if firms wanted to go back, would their customers let them?”