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Feb. 11, 2017, 8:47 a.m. EST

After Trump’s fiduciary order, there’s concern — and some optimism

’Why is it so hard to place investors’ interests first?’

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By Robert Powell, MarketWatch


Getty Images
CKE Restaurants CEO Andrew Puzder shakes hands with Vice President Mike Pence after a meeting with President Donald Trump before inauguration on Nov. 19, 2016. Puzder is Trump's nominee for Labor Secretary.

Some financial advisers have criticized President Donald Trump’s recent direction to the Labor Department to examine the fiduciary rule “to determine whether it may adversely affect the ability of Americans to gain access to retirement information and financial advice.”

Other advisers, however, applauded the Trump’s administration efforts to, among other things, to prepare an updated economic and legal analysis concerning the likely impact of the fiduciary duty rule.

The rule, scheduled to take effect April 10, is meant to protect retirement investors by requiring advisers to adhere to a fiduciary standard and give advice that is in the investor’s best interest, protecting them from potentially harmful conflicts of interest. It has been both applauded and criticized — the latter largely, but not only — by the industry, and Trump’s order has met with both concern and optimism.

Read : What selling insurance taught me about the fiduciary rule

“Why is it so hard to place investors’ interests first?” asked George Papadopoulos, a certified financial planner and president of a firm bearing his name. “This common sense rule has been studied to death for so many years and now we are going to study it again? I am extremely disappointed.”

“There has been plenty of talk regarding the unintended consequences of limiting investor choices, potential challenges for clients seeking advice, and the proliferation of lawsuits under the rule,” said Gavin Morrissey, a managing partner with Financial Strategy Associates. “If another set of eyes on the rule can help reduce or remove some of those issues then I can’t see why they shouldn’t plan for additional economic and legal analysis.”

Read : These financial-policy issues will define Trump’s legacy

Among other things, Trump is calling on the Labor Department to consider:

• Whether the rule is likely to harm investors due to a reduction of Americans’ access to certain retirement savings offerings, retirement product structures, retirement savings information, or related financial advice;

• Whether the rule has resulted in dislocations or disruptions within the retirement services industry that may adversely affect investors or retirees; and

• Whether the rule is likely to cause an increase in litigation, and an increase in the prices that investors and retirees must pay to gain access to retirement services.

The Trump memorandum calls on the Labor Department, should they “make an affirmative determination as to any of the considerations identified” or concludes that the fiduciary duty rule is inconsistent with the administration’s priorities, to publish a new proposed rule or rescind the current one.

According to the memorandum , the Trump administration’s priority is “to empower Americans to make their own financial decisions, to facilitate their ability to save for retirement and build the individual wealth necessary to afford typical lifetime expenses, such as buying a home and paying for college, and to withstand unexpected financial emergencies.”

The Labor Department “is considering options to delay the applicability date,” according to Jillian Rogers, a member of the Trump’s Labor Department landing team .

Current trends

Some financial services companies have already put in place policies and procedures to comply with the rule, and few are likely to walk back their publicly stated positions.

Merrill Lynch /quotes/zigman/190927/composite BAC +2.22%  in November launched a print, digital and social media campaign called, “We are committed to your best interest. Not the status quo.” That campaign, according to a press release, “clearly outlines the firm’s dedication to a higher standard of care.”

Read : Dear President-elect Trump: Please do right by investors

“Many firms have already been preparing and now find themselves in a tough spot of whether to move forward,” said John Nersesian, senior managing director with Nuveen. “The final version of memo makes no specific mention of a delay and offers no timeline for action. Firms are now dealing in a state of uncertainty.”

Given that uncertainty, legal experts are recommending that firms proceed as if the rule will become applicable on April 10. “Time is of the essence if the rule ends up not being delayed,” Jason Roberts, chief executive officer of the Pension Resource Institute, or PRI, wrote this week .

Roberts also noted firms that are members of PRI “intend to train and, in some cases, supervise to [a] fiduciary standard of care irrespective of when, and in what form, the fiduciary rule becomes applicable. Some have even indicated their desire to leverage their compliance with the best interest standard as a competitive advantage with clients and to enhance adviser recruiting.”

Nersesian also pointed to other trends that suggest the rule is here to stay in some form. “Investors already expect advisers to act in a fiduciary capacity regardless of qualified/non-qualified status and the industry will continue to move in that direction,” he said.

Plus, he noted that the industry will likely continue to move in a direction that provides greater transparency with regard to fees and emphasis on acting in the client’s best interests as a fiduciary. And he suggested that the demand for greater transparency and fee pressure will continue for the financial industry regardless whether the rule is suspended or delayed.

“Change is already underfoot,” said Nersesian. “A fiduciary mind-set has already taken hold along with the bigger trends of lower fees and greater transparency.”

What’s ahead?

As for what’s ahead, Michael Kitces, publisher of the Nerd’s Eye View , recently called it “increasingly likely that the Labor Department’s fiduciary rule will be here to stay in some form… the only question is exactly what provisions last in the truly-final version, and when it will truly take full effect.” (CKE Restaurants CEO Andy Puzder, Trump’s nominee for labor secretary, has not been confirmed.)

Nersesian says “the basic tenants of the rule remain unflawed: to eliminate conflicts of interest, to provide greater transparency, to ensure reasonable costs for investors and to improve investor outcomes. These objectives remain valid under the existing rule or any revisions that might arise.”

The best outcome, he said, would be a rule the industry can embrace without major disruption, leaving in place strong investor protections that also minimize the compliance burden for advisers; too-high burdens might result in less-affluent investors being excluded from receiving professional advice and some advisers leaving the business.

Ultimately, according to Nersesian, the outcome might be a rule that governs all forms of investor advice, including retirement and nonretirement investors, which would help reduce investor confusion regarding about adviser standards.

“As usual, the ‘devil’ is in the details,” he said. “Let’s hope the new administration can manage to retain strong investor protections while streamlining compliance requirements for advisers that may have unintended consequences for all parties.”

Robert Powell is editor of <INTERNAL-PAGE URL="/premium-newsletters/retirement-weekly">Retirement Weekly</INTERNAL-PAGE>, published by MarketWatch. Get a 30-day free trial to<INTERNAL-PAGE URL="/premium-newsletters/retirement-weekly"> Retirement Weekly</INTERNAL-PAGE>. Follow Bob’s tweets at RJPIII. Got questions about retirement? Get answers. Send Bob an email here.

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Robert Powell writes about retirement issues and produces the Retirement Weekly subscription newsletter. Follow Bob on Twitter at: @RJPIII. Got questions about retirement? Get answers. Send him an email here.

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