The future of the fiduciary rule, which was intended to benefit retirement savers, is in doubt after President Donald Trump called for its review Friday just two months before it was to go into effect.
The rule would have required financial advisors and brokers who provide advice for retirement accounts to be fiduciaries, meaning they must act in the best interests of their clients over their own. For example, it would have prohibited brokers from steering clients to products that didn’t suit their needs — such as those that charge high commissions.
What does this mean for you?
At minimum, this means consumers must do their own due diligence before hiring financial advisors and brokers. That includes researching an advisor or brokerage firm before hiring them and choosing one that already acts as a fiduciary.
Consumers should also ask questions about commissions and fees, and be mindful that even small percentages can add up to tens of thousands of dollars over a few decades of saving for retirement.
And consumers can now invest through robo-advisors, or automated online advisors. These services use computer algorithms to manage assets for a fraction of what a human advisor would charge.
Why the review?
Trump’s action directs the Department of Labor to review the fiduciary rule, and some who applaud the move say it could be a preliminary step to killing the regulation altogether. The president’s memorandum on the matter specifically mentioned this possibility.
At the signing, U.S. Rep. Ann Wagner, R-Mich., said Trump’s action was about Main Street. “What we’re doing is we are returning to the American people, low- and middle- income investors, and retirees, their control of their own retirement savings. This is a big day, a big moment for Americans who care to invest and save.”
Within the financial industry, there has been opposition to the rule. Some industry officials argue it would restrict investor choice and increase costs without providing the intended consumer protection.
Many consumer advocates disagree, saying the delay could be a blow to consumers. “The American investor needs protection from financial advisors who may not have their best interests at heart,’’ Julian Rubinstein, CEO and president of American Asset Management, a Florida-based advisor that manages more than 500 portfolios, said in a statement. “This is like telling medical doctors not to practice the best medicine that they can.”
Anna-Louise Jackson is a staff writer at NerdWallet, a personal finance website. Email: firstname.lastname@example.org.