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US President Donald Trump speaks during a press conference on February 16, 2017 to announce Alexander Acosta as his new nominee to head the US Department of Labor. Nicholas Kamm/AFP—Getty Images

The Feds Just Put a Hold on the Biggest Investor Protection in a Generation

Mar 02, 2017

A move to put strict new requirements on Wall Street just hit another setback.

The U.S. Department of Labor on Wednesday moved to delay, for at least two months, an Obama-era regulation called the “fiduciary rule.” The regulation—finalized last year and scheduled to go into effect on April 10—required all financial advisors, including brokers with major firms like Merrill Lynch, Morgan Stanley and Wells Fargo, to act in their clients’ best interest when advising people on their retirement savings.

Consumer advocates criticized the decision to postpone the rule's implementation, saying every day of delay costs working Americans millions of dollars in lost retirement savings. Additionally, they say, it will likely take much longer than 60 days to carry out a full and complete examination of the rule. “It’s a complete ruse that the delay will be limited to 60 days,” says Micah Hauptman, the financial services counsel at the Consumer Federation of America. “We should expect a string of delays, and the longer the rule is delayed, the more harm will befall retirement savers.”

But President Donald Trump has publicly come out against the rule and asked the Labor Department to undertake an updated economic and legal analysis of the impact of the regulation.

For years, many brokers have been allowed to put clients into expensive or risky investments, even if there were cheaper alternatives, under what was known as the "suitability standard." That rule said that investment recommendations needed only be "roughly suitable" for the client.

The implication: If your advisor has the option between two similar mutual funds, but one pays out a higher commission, he or she can put you in that one—even if the other fund has lower fees and would boost your portfolio in the long run. In fact, Obama’s Council of Economic Advisers found eliminating conflicted advice could save consumers $17 billion a year in unnecessary fees.

But the financial services industry has ferociously fought the reforms, arguing that the regulations are unduly burdensome and would limit investment options for middle-income Americans. In part, that's because financial advisors who work on commission have historically maintained lower investment minimums than other advisors who are already fiduciaries.

The Labor Department says delaying the rule's implementation until June will give the agency time to collect and consider the necessary information, as directed by President Trump. It's accepting public comments on its decision for the next 15 days.

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