Investor Protection Rule Gets Trumped

Less than two weeks after taking office, President Trump directed the Department of Labor to review implementation of a new rule to protect investors.  The DoL’s fiduciary rule, first proposed in 2010, would require brokers, insurance agents, financial planners and others that give financial advice on retirement plans to put their client’s interests first.

Wall Street brokers and insurance agents like to talk about how trustworthy they are, but both industries fought the new rule for years and spent tens of millions of dollars lobbying Congress to stop it.  The Republicans were clearly in Wall Street’s corner on the issue, but faced a veto from President Obama who gave the rule his full support two years ago.

The DoL fiduciary rule was designed to provide transparency on costs and require “reasonable compensation” for selling investment products in IRAs and other retirement accounts.  Brokers could still receive commissions, but would be required to disclose the costs and agree to put their client’s interests first in a Best Interests Contract that could be enforced in the courts.

The advisors at Vintage would have been largely unaffected by the new rule since we are Investment Advisor Representatives registered through the SEC and work on a fee only basis.  This type of registration requires us to act in our client’s best interest which is easy to do since we don’t receive compensation from anyone but our clients.

Frank Moore of Vintage has been actively working in support of the DoL rule for the past two years in his role with the Financial Planning Coalition.  The coalition is comprised of the Certified Financial Planner Board, the Financial Planning Association and the National Association of Personal Financial Advisors (NAPFA).  Frank was the chair-elect and chair of NAPFA and is finishing his three-year board term this year as treasurer.  The Financial Planning Coalition was an important supporter of the rule and had representatives testify before Congress and the DoL about the need to protect investors.

After several years of work, the Department of Labor announced the new rule in April, 2016 and it was to take effect on April 10, 2017.  The new review will give the new administration time to revoke or rework the rule to the benefit of Wall Street and the insurance industry.  While it isn’t officially dead now, investors will need to continue to be wary of investment salespeople and make sure to ask the right questions about their compensation and motivations.  For help in determining how to vet a financial advisor, see the free checklist.

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