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Daily Capital

Fiduciary Snapshot: The Latest on the Fiduciary Rule

Personal Capital was built around the fiduciary standard, a promise to provide advice that is always in our clients’ best interest. Because we are a Registered Investment Advisor (RIA), it is our obligation to follow the fiduciary standard to act in our customers’ best interest, and not push products or serve our own bottom line first. So, it comes naturally that we were excited when the new Fiduciary Rule was announced last April, and we are keeping a close eye on whether the rule will roll out as planned in April under a new Trump administration.

What is the Fiduciary Rule?

The U.S. Department of Labor passed the Fiduciary Rule to be enacted beginning April 10, 2017. The rule requires all financial advisors and brokers to act in “the best interests” of their clients when it comes to retirement accounts, including 401k’s, individual retirement accounts, IRA rollovers and other retirement-qualified funds (the rule doesn’t affect non-retirement accounts). Experts believe that the rule will affect more than $3 trillion in retirement assets in the U.S.

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How does this differ from the current state of things? Many brokers – or “financial advisors” who are not fiduciaries – simply had to meet a “suitability standard,” meaning that they could conceivably steer clients into products that pay the advisor a higher commission, as long as that product is “suitable” for that client. Proprietary products, such as proprietary annuities, can still be sold under the rule as long as appropriate disclosures about the product or compensation are made.

Recently, there has been a lot of speculation around President-elect Trump repealing this ruling when he takes office. At Personal Capital, we are strong supporters of the Fiduciary Rule, and are excited to see how it will benefit hundreds of thousands of investors. With a vested interest in which way this pendulum swings, we’ve been tracking the latest information to keep you updated.

The Latest Buzz

  • Earlier this week, President-elect Trump selected Jay Clayton as SEC chair. Clayton, who is a partner at law firm Sullivan & Cromwell, has represented big names on Wall Street, including Goldman Sachs, and has helped companies such as Alibaba through the IPO process. While it’s still unclear how Clayton will put into action Trump’s announcement to “undo many regulations which have stifled investment in American business, and restore oversight of the financial industry in a way that does not harm American workers,” his nomination may impact whether the Fiduciary Rule will remain intact (although his appointment is less important to the rule than the nomination for labor secretary).
  • Last month, the DOL’s Fiduciary Rule withstood a third legal challenge when a federal appeals court ruled in favor of it, although there are still pending lawsuits against the ruling. This latest court ruling rejected a request to postpone the deadline to implement the regulation within 10 months.
  • While the public debates whether the regulation will be repealed, many predict that the SEC will have to weigh in. Investment News cites an unnamed SEC official who says that if the rule is repealed, “There is going to be pressure on the SEC from the financial industry to fill the void.”

For more fiduciary news, keep an eye on our blog.

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

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