Proponents of the U.S. Department of Labor’s (DOL) Fiduciary Rule suspected it might not survive a Trump presidency. And on February 3, Mr. Trump fired the first salvo – issuing a memo ordering the DOL to review the controversial rule. Since then, the DOL has filed a proposal to delay the April 10 applicability date while it conducts its review. If the review finds the Fiduciary Rule to be inconsistent with President Trump’s policies, the DOL must propose a revised rule, or rescind it altogether.
The Fiduciary Rulewas controversial long before Mr. Trump took office, but the concept itself is simple. In short, when providing advice on retirement accounts (note the limitation), financial advisers must place their clients’ interests ahead of their own.
Why would doing the right thing create such controversy?
At present, brokers and financial advisers who aren’t Registered Investment Advisers only need to prove the investment is “suitable” for their clients. Here’s the rub: If two different investments are suitable for the client, but only one of them pays a hefty commission to the adviser, guess which one he or she is likely to recommend?
Court Rejects Challenges to DOL Rule
In asking the DOL to review the Fiduciary Rule, President Trump expressed concern that the rule limits consumer access to retirement products, causes disruptions in the industry that could affect investors or retirees, and could cause litigation to increase, leading to increased prices of retirement products. A lawsuit filed against the original rule filed by the Financial Services Institute (FSI), the Securities Industry and Financial Markets Association (SIFMA), and the U.S. Chamber of Commerce also argued that the rule could harm retirement savers, as well as limit advisers’ freedom of speech. A judge in Dallas disagreed, however, writing in her 81-page ruling that, “At worst, the only speech the rules even arguably regulate is misleading advice.” On Feb. 17, a Kansas federal judge also granted a summary judgment to the DOL, marking the fourth loss for lawsuit challengers against the Fiduciary Rule.
Proponents, like Vanguard’s John Bogle, think the Fiduciary Rule doesn’t go far enough, and I agree. Why don’t all investors deserve to have their interests placed first? Still, the rule is a start. And if nothing else, more and more investors are waking up and asking questions. The fiduciary “genie” is out of the bottle!
The Ultimate Work-Around for Consumers
If opponents to the Fiduciary Rule succeed in their efforts to delay or rescind the rule, it’s still possible to obtain fiduciary advice – and not just when it comes to retirement planning. The easiest way is to ask a few simple questions, starting with this:
Will you work in my best interests, and if so, will you commit to that in writing?
If the answer you receive is no, you can opt to keep looking, or you can choose to dig deeper, checking into the adviser’s credentials, reviewing his or her records through FINRA’s BrokerCheck website, and asking the adviser how he or she gets paid. In addition to payment, what other kinds of cash or non-cash incentives could the adviser receive by selling certain products over others?
At AMDG Financial, we always work in our clients’ best interests – not just when it comes to retirement. As a fee-only fiduciary firm, we’ve set up our practice with procedures to support transparency and conflict-free advice. We voluntarily commit to a standards-based assessment, verified by an annual audit, to ensure we adhere to best practices for fiduciary advice. AMDG Financial was the first firm in Michigan, and one of the first 10 advisory firms in the world, to receive a Certificate of Registration from the Centre for Fiduciary Excellence.
In anticipation of the Fiduciary Rule’s effective date, many firms have already altered the way they do business to comply with the rule in its current form. More will follow as long as consumers continue to demand the duty of care they deserve. Don’t be afraid to ask hard questions, and vote with your feet if you don’t like what you hear. After all, it’s your money!