U.S. President Donald Trump signs an executive order rolling back regulations from the 2010 Dodd-Frank law on Wall Street reform at the White House in Washington February 3, 2017. REUTERS/Kevin Lamarque
With a swipe of
his pen, U.S. President Donald Trump on Friday started killing off a retirement
advice rule that wealth managers from Wall Street to Wisconsin have spent the
last six years lobbying against.
A landmark
policy from the Obama era, the so-called fiduciary rule requires brokers and
financial advisers to act in the best interest of retirement savers. This
restricts their ability to earn commissions and to sell some higher-fee
products.
Wall Street has
argued it would harm consumers because it would raise compliance costs and
therefore fees, and force them to get rid of Main Street clients and small
businesses that offer 401(k) plans.
Trump’s
executive order asks the Labor Department to review whether the rule needs to
be changed or dumped.
Both supporters
and opponents are girding to argue their case. But the industry has the edge,
with Trump officials stating they were planning on rolling back regulation
generally and criticizing the fiduciary rule in particular.
The Chamber of
Commerce, one of a number of trade groups which have filed lawsuits to kill the
rule, cheered Trump’s order.
“We look forward
to swift action from the Department of Labor in putting this delay into effect
and reevaluating matters of policy and law,” the Chamber said in a statement.
Shares of banks
with large wealth management divisions jumped on Friday with Bank of America
(BAC.N) up 2.5 percent, Morgan Stanley (MS.N) 5.5 percent stronger and Wells
Fargo (WFC.N) over 2 percent higher.
Insurers, whose
sales of annuity products were at risk from the rule, also rose, with shares of
Prudential (PRU.N) up 1.9 percent and Metlife (MET.N) 1 percent stronger.
"Everyone
will be pleased that DOL’s rush to get it done before the administration change
is set back," said Judi Carsrud, director of government relations for the
National Association of Insurance Financial Advisors (NAIFA), which has been
fighting the rule for years.
NAIFA plans to
pursue a "very straightforward" fix such as a “legislative approach”
that directs retirement account advisers to act in clients’ best interest – a
standard that Carsrud believes the group’s members already meet.
CHANGES ALREADY
UNDERWAY
The Obama
administration had said conflicted advice costs American families $17 billion a
year but the industry has said that figure was inflated.
No-one disputes
the high cost that firms would have to pay to comply with the new rule, an
amount the Labor Department estimates at as much as $31 billion over the next
decade.
Banks have
already started changing things with Bank of America saying this week it would
more clearly disclose the fees it charges clients of its Merrill Lynch wealth
management business.
Bank of America
Corp had already started cutting back on "transactional" accounts
that charge clients a commission for every trade, rather than a flat fee based
on assets.
Morgan Stanley
(MS.N) has decided to keep such accounts but is making changes that will allow
advisers to work within the rule's confines by creating new contracts,
re-training advisors and updating supervisory software.
Swiss bank UBS
UBSN.VX welcomed Trump's order and said it supported the creation of a
fiduciary rule under the Securities and Exchange Commission, which could apply
to all advisers not just retirement advisers.
Wells Fargo said
it would continue to work with regulators to ensure higher standards of care
for investment clients. Other banks either declined to comment or were not
immediately available to comment.
Implementing
changes was particularly tough for small-time financial advisers.
Along with two
colleagues, Juli McNeely, who runs McNeely Financial Services in Spencer,
Wisconsin has spent between 45 and 60 hours each week since December preparing
for the rule.
Their work has
focused largely on figuring out which clients from their rural community should
now pay a flat fee for financial advice, instead of commissions, and creating
new templates for paperwork.
“Now we have a
little breathing room to make sure we do this right and not quickly to meet a
deadline,” said McNeely, who voted for Trump, in part because of his
pro-business stance.
AN HONEST PROCESS
One person who has yet to comment on the retirement rule
review is the person who will be at the center of it -- Trump's choice to head
the Labor Department, Andy Puzder.
Puzder, chief executive of fastfood group CKE
Restaurants, has been a vocal opponent of what he has called
"overregulation" during the Obama administration. The 401(k) plans he
offers his own employees are less generous than some rivals, suggesting a more
industry-friendly approach.
While the Labor Secretary cannot unilaterally repeal a
rule, his agency can rewrite and change a rule substantially or scrap it.
William Galvin, the top securities regulator in
Massachusetts, described Trump's order as "reckless".
"My office will continue to protect small
investors when those in Washington cave to big business."
Not all proponents of the rule were as pessimistic.
“There’s no question that in the minds of industry
lobbyist, delay is just a step toward repeal,” said Barbara Roper, investor
protection director for the Consumer Federation of America (CFA). “If the
Department of Labor follows an honest process and considers the impact on
retirement savers, we have a winning argument."
(Additional reporting by by Sarah N Lynch and Lisa
Lambert in Washington DC and Lawrence Delevingne in New York.; Writing by
Carmel Crimmins; Editing by Chizu Nomiyama)
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