With the stroke of a pen, President Trump has put the future of a controversial financial-planning rule in doubt. On Feb. 3, he signed an executive memo instructing the Department of Labor to review the fiduciary rule, which requires financial advisers to put their clients’ interests ahead of their own when giving retirement investment advice. If the department finds that the rule has hindered the public’s access to retirement-planning information, officials would need to publish a new rule to either rescind or revise it.
The review is a victory for opponents of the rule, enacted by the Obama Administration in 2015. “This has been a big moment for Americans,” said Missouri Republican Representative Ann Wagner. She says the rule limits low- and middle-income Americans’ access to retirement advice and puts an unnecessary burden on the advisory industry. Supporters, meanwhile, contend that the fiduciary rule was designed specifically with the interests of working people in mind. Left in the middle: the thousands of financial-planning firms affected by the rule and the vast numbers of Americans who rely on their advice.
Before the rule was issued, it had been 40 years since retirement-advice regulations had been significantly revised. In that time, a shift away from employer-provided pension plans toward personal plans like the 401(k) and individual retirement accounts increased reliance on financial advisers and brokers.
Yet not all financial planners have had to adhere to the same standard. Before the rule, only registered advisers and those appointed under the law followed the fiduciary standard. Other financial planners could comply with the suitability standard, a lower bar that allowed for potential conflicts of interest like steering a client toward a specific savings plan without disclosing that the broker received a commission for selling that plan. Conflicts of interest, the White House Council of Economic Advisers estimates, have led Americans to lose $17 billion annually in lower returns.
To some financial planners, however, the Obama Administration’s solution missed the mark. “There’s no disputing that every financial adviser ought to be acting in the best interest of their clients,” says Dale Brown, CEO of the Financial Services Institute, which advocates for the industry. “The main problem is that the rule is so complex and so costly for advisers to comply with, and exposes advisers and firms to such potential liability and lawsuits, that it ultimately prices access to financial advice out of the reach of small investors who need that advice the most.”
Like virtually everything else in Washington, the fight over the fiduciary rule is divided along party lines. Before the text of Trump’s memo had even been released, Democrats were staking out their position. The ranking member of the House Financial Services Committee, Maxine Waters of California, warned that eliminating the rule could contribute to another financial crisis. “Every day you don’t have the fiduciary rule is a day that you can offer conflicted advice,” said Minnesota Representative Keith Ellison. And Senator Elizabeth Warren of Massachusetts said the memo made it “easier for investment advisers to cheat you out of your retirement savings.”
Even with the future of the rule uncertain, some of the changes it calls for may stick. In November, Capital One Investing joined a group of firms, including JPMorgan Chase and Merrill Lynch, that dropped commissions for retirement-account services in order to comply with the rule. The Financial Planning Coalition, which represents nearly 80,000 professionals, says the rule has led to lower fees, increased options and more-creative approaches to client services.
“I do think a lot of the industry continues to embrace a fiduciary standard as it applies to advisers working with their investor clients,” says Brian Graff, CEO of the American Retirement Association, a trade group. “I don’t expect that trend to go away.”
The President’s memo may not have killed the fiduciary rule outright, but it could lead to death by delay. If the Labor Department decides to rewrite the rule, it would kick off the same multiyear process that was invoked to develop current regulations. For high-income and large institutional investors, any changes will do little to alter their expectation that advisers put their interests first. But for everyone else, the uncertainty could make for an even longer, winding road to retirement security.
SOURCES: U.S. DEPARTMENT OF LABOR; WHITE HOUSE
This appears in the February 20, 2017 issue of TIME.