The Fiduciary Rule is Dead – Here's What It Means for Your Retirement Planning

The Fiduciary Rule is Dead! Long Live the Fiduciary Rule!

Well… it didn’t get quite such a commemorative send-off. In fact, it got the sort of ignominious sentence fit for a mongrel animal or a disowned family member. Yes, the Department of Labor (DOL)’s fiduciary rule is dead and it doesn’t look like we’ll be seeing anything resembling a revival. If you have not been following, the demise of the fiduciary rule follows a months-long saga that has gripped the investment industry. If you have been following but you’re a little lost, that’s okay. The events leading to the recent outcome have been full of so many twists and turns it’s easy to lose the trail. We’ll be breaking down what the fiduciary rule was and what it means now that it’s gone. Specifically, you’ll see what that means for you and your investments.

What was the fiduciary rule?

At its heart, the fiduciary rule was meant to essentially expand upon the existing definition of “investment advice fiduciary”, as defined under the Employee Retirement Income Security Act (ERISA). ERISA was enacted in 1974 and basically laid out the parameters for how retirement fiduciaries should be managed. If you are currently enrolled in some sort of retirement savings plan through your employer, ERISA is there to make sure your dedicated retirement assets aren’t being misused. You can learn more about ERISA’s purpose and function here.

What was it supposed to do?

The new fiduciary rule sought to designate all financial professionals handling retirement plans or offering retirement investing advice as fiduciaries. As a fiduciary, a financial professional is held to strict ethical and legal standards. There is much greater accountability as a fiduciary as opposed to a traditional financial salesperson, like a broker. The new rule would have had widespread effects throughout the financial industry, impacting nearly all financial advisors. The fiduciary rule was met with a large outcry from many financial professionals, most notably those working on commissions. If you are saving for retirement though, then this new rule sounded pretty good, right? Brokers and insurance reps would be held to stricter standards concerning your retirement planning. Supporters of the new rule hoped it would increase transparency in the investment world, especially among financial advisors. Retirement investors would be protected from unnecessary investment advice given just to churn commissions. However, financial professionals were not at all happy with it. Many found the rule over-restrictive and costly.

The Drama Unfolds

The Obama-era measure, set to be rolled out between mid-2017 and early 2018, faced all but certain doom from the beginning. Already unpopular among many financial professionals, the incoming Trump administration was also already signaling a desire to review its scope and purpose. What followed was a flurry of memoranda, bulletins and public outcry regarding a delay implementation and pending reviews. The ensuing drama sparked controversy and confusion in both the public sector and professional communities. In an effort to keep the following events in order as they unfolded, we’re going to switch to a bulleted list:

• Feb. 2017 – President Trump issues memorandum asking for 180-day delay and an “economic and legal analysis”.
• March 10, 2017 – DOL issues Field Assistance Bulletin No. 2017-01 indicating a possible 60-day delay
• March 2017 – Ceding to pressure and confusion from the financial industry, DOL opens 15-day public comment period regarding the rule delay.
• April 2017 – DOL releases official, 60-day delay on fiduciary rule’s application date.
• May 2017 – Labor Secretary confirms the rule won’t be delayed past initial 60-day period.
• June 30, 2017 – DOL opens public comment period additional 30 days.
• August, 2017 – DOL asks for a 18-month delay to the rule’s compliance deadline. Delay is granted by the Office of Management and Budget.
• March 2018 – 5th Circuit Court of Appeals vacates DOL’s fiduciary rule.
• April 2018 – DOL allows rehearing date to pass without acting.
• May 2018 – Appeals Court denies motions for AARP and the States of California, New York and Oregon to assume defense of the rule.
• June 2018 – Final rehearing deadline passes with no action from DOL.

Post-Fiduciary Rule Fallout

So now that you’re up to speed, you’re probably wondering, “Where does this leave me and my retirement planning”? If the fiduciary rule was meant to be an increased safety measure to protect retirements savers from misconduct, what assurances are left? Following this measure’s crushing defeat, it doesn’t seem like the climate is ripe for any similar financial regulations. Unfortunately, this may impact you the most if you are saving for your retirement. Of all the current Obama-era financial regulations currently under scrutiny, the fiduciary rule may have impacted ordinary, individual investors. The demise of the fiduciary rule leaves a considerable void in the investor-protection framework and there aren’t many suitable successors. However, a recently proposed SEC measure addressing investment advice does include retirement savings standards covered in the DOL fiduciary rule. Supporters of the DOL rule are looking at how to make the SEC proposal better for retirement savers. Currently, the official proposal is in 90-day public comments period. If you want to find out more about the proposed SEC measure, click here.

Protecting Your Retirement Savings

The sad fact about the financial industry – whether you invest in stocks or are just saving for your retirement – is that there are people who want to take advantage of you. Using deceitful and unscrupulous practices, they’ll try to dupe you out of your assets. The demise of the fiduciary rule means that you have one less protection in your corner. But you don’t have to go it alone. There are a ton of resources out there that you can use to inform and educate yourself. If you’re saving for your retirement, the best thing you can be is prepared. Make an effort to know not only who is managing your funds, but how they are being managed. Don’t be intimidated by your financial advisor and don’t be afraid to ask questions. Remember: you are in control of your savings and your financial planning. Don’t let anyone tell you otherwise or try to make decisions with out your consent.

Broker Misconduct and Investment-loss Recovery

If you believe that you may have suffered from broker misconduct or have been the victim of investment fraud, contact our team.