While President Donald Trump’s action to ban travel by residents of seven countries has drawn the most publicity, one of his actions that has larger flown under the radar could affect the decisions of Americans as they make long-term plans for retirement.
The president’s Memorandum on Fiduciary Duty Rule, signed Feb. 3, has ordered the Department of Labor to analyze whether a law to take effect in April will hamper Americans’ ability to receive financial advice. Since the Employee Retirement Income Security Act’s enactment in 1974, the department has regulated the quality of financial advice regarding retirement accounts.
Reforms were proposed in 2010 but were withdrawn due to fierce opposition from the financial industry. In early 2015 President Barack Obama proposed a major overhaul of the regulation, and on April 14, 2016, the labor department proposed new regulations, which were approved by the Office of Management and Budget and were scheduled to be phased in beginning April 10.
At the time, Obama said the change was necessary to require that financial advisors out their client’s interests before their own. In his memorandum, Trump said the reforms could run counter to the goals of his administration, stating his priority “is to empower Americans to make their own financial decisions, to facilitate their ability to save for retirement and build the individual wealth.”
Trump’s action stalls the implementation of the new regulations, prompting the labor department to issue a statement announcing it would “now consider its legal options to delay the applicability date as we comply with the President’s memorandum.”
The department likely will analyze two key phrases: “fiduciary standard,” which requires investment advisors to put the best interests of their clients above theirs, and “suitability standard,” which means that “as long as an investment recommendation met a client’s defined need and objective, it was deemed appropriate,” according to Investopedia.
Fiduciary rules apply to all professionals who make investment recommendations or soliciting business, not simply to those who give ongoing advice. Advisers who charge a fee for service on retirement plans are typically considered fiduciaries.