A rule designed to help working people better save for retirement has been halted by the Trump administration.
After ordering a re-examination in February, President Trump issued an executive order on April 7 to delay a Department of Labor rule to prevent conflicts of interest between consumers and financial brokers. The mandate updated the definition of “fiduciary investment advice” under the Employee Retirement Income Security Act, ensuring that any adviser receiving compensation for providing personalized advice has a fiduciary duty to do so in the best interest of the client.
“This is a simple, straightforward rule that helps everyday working Americans,” said International President Lonnie R. Stephenson. “A lot of those people voted for Trump and enacting this rule is an easy way for him to show them that he really is on their side.”
The regulation, crafted in 2016, was scheduled to go into effect on April 10, but Trump’s executive order delayed that for 60 days. It’s unclear whether the administration will get rid of it altogether or rewrite it.
Prior to the order, a broker’s advice may have been colored by motivation to earn fees and commissions, or a push to sell certain items and bring in profits. And the broker was only required to offer a “suitable” investment with no regard for the size of the commission, which could have ranged from 1 to 10 percent.
The Council of Economic Advisers estimated that such conflicts of interest cost investors $17 billion a year. If enacted, the fiduciary rule would save middle-class families tens of thousands of dollars over a lifetime of savings, said the Economic Policy Institute.
Opponents of the directive, including some members of Congress and the financial industry, argued that it would raise costs and make it more difficult to work with investors with low-balance accounts.
Supporters, including the AARP and the AFL-CIO, likened the new requirement to that of doctors and lawyers, other professionals with a sworn commitment to act in the best interest of their patient or client. The IBEW lobbied for the guideline and signed on to letters of support.
At a time when many employers are moving away from defined benefit plans like pensions to defined contribution plans like 401(k)s, which are more susceptible to market fluctuations, getting unbiased information from a financial advisor has become an important part of ensuring retirement security.
The rule has been challenged in court. Thus far, four federal courts have upheld it, finding the criticisms “flawed and unconvincing,” reported NPR.
"Make no mistake: This rule is now under attack," Cristina Martin Firvida, AARP's director of financial security told NPR.
The Department of Labor is taking comments on the rule until April 17. Click here to add your comments.
Photo used under a Creative Commons license by Flickr user InvestmentZen.