Should advisers be required to put clients first?
Should financial industry professionals be required by law to put their clients’interests ahead of the size of their fees and commissions? That’s the thrust of a U.S. Labor Department regulation, known as the fiduciary rule, that was scheduled to take effect in April. The Trump administration called time-out and ordered a review just before the rule was to be implemented, leaving its status in question. Consumer advocates assert that the rule is necessary to protect investors from advisers who recommend products that pay a high commission or fee but may not be the best for their clients. The financial industry counters that the rule would hurt small investors more than help them.
Among the key takeaways:
Only about 1 percent of U.S. financial professionals are “registered investment advisers” who are legally obligated under current law to put their clients’ interests first. The rest are required only to recommend “suitable” investments.
“Conflicted advice” – recommendations from advisers who suggest investments because they pay higher commissions or fees – costs investors $17 billion annually, according to the Obama administration.
The fiduciary rule could cost brokerage houses that work on commission $11 billion in revenue over the next three years, a study by a financial consulting firm found.
Resources for Further Study
Olen, Helaine, “Pound Foolish: Exposing the Dark Side of the Personal Finance Industry,” Portfolio, 2012. A financial journalist aims to dispel myths behind many of the pitches of the financial-services industry.
Frankel, Matthew, “The Fiduciary Rule: Pros and Cons,” USA Today, Feb. 3, 2017, http://tinyurl.com/
Hackbarth, Sean, “How the Labor Department’s Fiduciary Rule Will Be Disastrous for Those It’s Intended to Help,” Above the Fold, U.S. Chamber of Commerce, Nov. 10, 2016, http://tinyurl.com/
Kelly, Bruce, “DOL fiduciary rule to cost the securities industry $11B by 2020: study,” InvestmentNews, Sept. 21, 2016, http://tinyurl.com/
Norton, Leslie P., “The DOL Fiduciary Rule Still Has Momentum,” Barron’s, Feb. 4, 2017, http://tinyurl.com/
Reish, Fred, “The Department of Labor’s fiduciary rule: Where are we now?” InvestmentNews, March 14, 2017, http://tinyurl.com/
Reports and Studies
“The Effects of Conflicted Investment Advice on Retirement Savings,” White House Council of Economic Advisers, February 2015, http://tinyurl.com/
“6 Ways the DOL Fiduciary Rule Improves Protections for Retirement Savers,” Consumer Federation of America, May 2016, http://tinyurl.com/
Hauptman, Micah, and Barbara Roper, “Financial Advisor or Investment Salesperson? Brokers and Insurers Want to Have it Both Ways,” Consumer Federation of America, Jan. 18, 2017, http://tinyurl.com/
Litan, Robert, and Hal Singer, “Good Intentions Gone Wrong: The Yet-To-Be-Recognized Costs of the Department Of Labor’s Proposed Fiduciary Rule,” Economists Incorporated, July 2015, http://tinyurl.com/
The Next Step
Corbin, Kenneth, “Fiduciary advocates strike back after rule delay,” Financial Planning, April 5, 2017, https://tinyurl.com/
Iacurci, Greg, “Tax reform could be ‘way worse’ for retirement industry than Department of Labor’s fiduciary rule: Graff,” InvestmentNews, March 20, 2017, https://tinyurl.com/
Lynch, Sarah N., “Trump Administration to Delay Fiduciary Rule by 60 Days,” Insurance Journal, April 6, 2017, https://tinyurl.com/
Anderson. Tom, “Man vs. machine: How to figure out if you should use a robo-advisor,” CNBC, March 13, 2017, https://tinyurl.com/
Irrera, Anna, “Charles Schwab launches hybrid human-robo financial advice,” Reuters, March 14, 2017, https://tinyurl.com/
Padalka, Alex, “JPMorgan is Rolling out a Robo-Advisor This Year,” Financial Advisor IQ, April 6, 2017, https://tinyurl.com/
Consumer Federation of America
1620 I St., N.W., Suite 200, Washington, DC 20006
Consumer advocacy group that has argued strongly for the fiduciary rule.
Financial Industry Regulatory Authority
1735 K St., N.W., Washington, DC 20006
An independent, not-for-profit organization authorized by Congress to protect America’s investors.
Public Investors Arbitration Bar Association
2415 A Wilcox Drive, Norman, OK 73069
An international bar association whose members represent investors in disputes with the securities industry.
Securities Industry and Financial Markets Association
120 Broadway, 35th Floor, New York, NY 10271
Trade group that represents broker-dealers, banks and asset managers.
U.S. Chamber of Commerce
1615 H St., N.W., Washington, DC 20062-2000
Membership organization that represents businesses before Congress, government agencies and the courts.
U.S. Department of Labor
200 Constitution Ave., N.W., Washington, DC 20210
Federal department that oversees laws and regulations related to employment; crafter of the fiduciary rule.
U.S. Securities and Exchange Commission
100 F St., N.E., Washington, DC 20549
Federal agency whose mission includes protecting investors.