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The Fiduciary Rule Change the Trump Should be Making

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The Trump roadshow brought chaos to Wall Street recently by opening a 180-day review of last year’s fiduciary rule change brought in to protect retirees from unscrupulous investment advisors. This is largely seen as a prelude to removing the law altogether, re-opening the market to advisors who wish to put their own financial benefits – i.e. by pointing retirees toward high fee changing schemes – ahead of those of their clients. However, in all the hoo hah, there is a simple rule change to the fiduciary rule which should be made, and it’s the opposite of what The Donald is likely to propose – expand it.

How the Fiduciary Rule Change Works

The new fiduciary rule introduced by the Department of Labor in 2016 required all investment advisors working on retirement accounts to put the interests of their client above their own interests. Retirees have accumulated savings, share options, pension pots, and property with which to organize a better retirement. The fiduciary rule was applied in order to help avert a looming retirement crisis by ensuring retirees are able to maximize their income from their assets rather than having them stripped bare. In theory, the rule will help boost savings and reduce the number of retirees falling back on state and federal aid programs.

The Likely Consequences of Trump’s Rule Reversal

However, Donald Trump signed an executive order on February 3rd to review the rule change with the expressed aim of rescinding it. The first consequence of this is uncertainty, which has hit markets as investors become wary over what they do with their money. Furthermore, the move will undermine trust in retirement investment advisors and firms, will possibly reduce investments by retirees which help fund markets, and may have knock on effects relating to the flow of money and employment. For retirees, it raises the prospect of not being able to trust advisors and a reticence to invest money in schemes and programs. Furthermore, it could impoverish many elderly as their advisors put their own interests ahead of the clients’. If ill advised, retirees may find it difficult to gain the funds for their pensions and the coverage for vital services such as debt repayment, burial costs, and estate taxes.

Expand the Rule to All Investments

Trump’s presidential campaign was based around the idea of helping ordinary Americans. Much of this is related to access to work and income. However, while this article is not going to go into any depth on the campaign itself, it is logical, as Barry Ritholtz has outlined in OnWallStreet and Bloomberg View, that the rule should actually be expanded to cover all financial investment advice, not just retirees. If government’s three aims should just be encourage, protect, and support, then it is moral to protect investors of all ages and means from being exploited. Afterall, those most likely to be exploited are the vulnerable and the low wage earners looking to maximize the little they have, but who might not have the financial brains to navigate all of the myriad options or to do the required due diligence to ensure they are not being exploited. This is not a new idea either. The SEC staff reviewing the rule suggested this very change back in 2011. Yale University’s Charles Ellis believes not protecting investors costs those investors $17 billion a year. Now it could get worse.

The post The Fiduciary Rule Change the Trump Should be Making appeared first on OBW Law.


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