DOL Fiduciary on Life Support

The Department of Labor's fiduciary rule faces two hurdles: a lawsuit and now, the Trump Administration's efforts to delay or perhaps kill it off. On Friday, President Trump signed an order directing the Treasury secretary to review the 2010 Dodd-Frank financial regulatory law. You remember Dodd-Frank, the big legislation meant to reign in the excesses of Wall Street after the financial crisis, right?

While the law was certainly not perfect, there were plenty of aspects of it have unequivocally helped consumers, like the establishment of the Consumer Financial Protection Bureau. Another post-crisis boost for consumers was the Department of Labor's pending April 10th implementation of the fiduciary standard for companies and individuals who provide retirement plan advice and services to millions of Americans.

Let’s step back and review what I like to call, “the F-Word”. Fiduciary is the standard of care, which requires financial professionals to put the interests of their clients first. That principal might seem obvious to any consumer, who would rightly imagine that someone who is talking to her about her financial life should put her interest before his or his company’s interest, right?

But the majority of the financial services industry has been held to a lower standard, which was called “suitability.” The bar for suitability was lower – it meant that any financial product that was sold had to be appropriate for you, though not necessarily in your best interest. The problem is that most investors have been unaware of the different standards that have applied for all of these years.

When asked by the CFP Board, nine out of ten Americans agreed that when they receive financial guidance, the person providing the advice should put the consumers’ interests ahead of theirs and should have to tell consumers up front about any conflicts of interest that could potentially influence that advice. The higher bar was about to become a reality for those seeking guidance on their retirement accounts. Last year, the Department of Labor announced new rules about the fiduciary standard for professionals who service retirement savers.

Despite lots of squawking by big financial firms (they spent millions of dollars lobbying lawmakers in an effort to kill the rule and even filed a lawsuit-see Friday’s calendar entry), those crybaby companies had somehow managed to prepare for the implementation of fiduciary, by adding different choices for investors and/or by beefing up their staff numbers. It should also be noted that despite spending money on complying with the new rule, almost every financial services company has managed to be quite profitable over the past year.

But don’t tell that to White House National Economic Council Director (and former Goldman Sachs President) Gary Cohn, who told The Wall Street Journal that the rules have placed a “burden” on banks by adding “hundreds of billions of dollars of regulatory costs every year”. Cohn also said that “banks are going to be able to price product more efficiently and more effectively to consumers.” The only problem is that retirement investors won’t know whether or not those products are in their best interests.

The delay or elimination of the fiduciary standard is a slap in the face to anyone who cares about investor protections. But if the government takes the position that the fiduciary standard is not important, than ask yourself this question: If a broker or salesperson doesn’t want to put you first, why should you work with him?

Here’s what investors can do: vote with their business and punish any firm that does not adhere to the fiduciary standard. There are tens of thousands of financial professionals ready to help you, including those with the CFP® certification from the Certified Financial Planner Board of Standards (CFP), CPA Personal Financial Specialists (CPA-PFS), members of the National Association of Personal Financial Advisors (NAPFA), those who have earned the Chartered Financial Analyst (CFA) designation and about 70 percent of the members of the Financial Planning Association (FPA). You can also work with a robo-advisor, a far better alternative than a conflicted salesman who is pushing a more expensive investment product than you need.


Friday was busy! In addition to President Trump's order, the government said the economy added 227,000 jobs in January, better than the expected 175,000 and above last year's average monthly gain of 187,000 (2,242,000 total jobs were added in 2016). The unemployment rate ticked up to 4.8 percent, but that was primarily due to the fact that more Americans were looking for work.

The participation rate, which is the percentage of adults working or seeking employment, edged up by two-tenths of a percent to 62.9 percent. This is still about three percentage points lower than the pre-recession average, though about half of the slide can be attributed to retiring baby boomers.

The broader unemployment rate, which includes part time workers who want full time jobs and disgruntled workers, was 9.4 percent, which is still a full percentage point above the pre-recession average. Additionally, about a quarter of unemployed Americans have been out of work longer than six months. And although there were high hopes for a good start to 2017 for wage growth, due to the minimum wage rising in 19 states, January’s annual increase slowed to 2.5 percent, down from the 2.9 percent pace December.

President Trump can’t yet claim credit for the strong monthly job creation numbers, because the survey period was mostly conducted prior to his inauguration. Going forward, it will be interesting to hear how he and his economic team describe the labor market. As a candidate, Trump questioned the government’s data and even went as far to say that the unemployment rate was a “hoax”.