DoL Fiduciary Rule Up In The Air

It’s still unclear what exactly President Donald Trump will do to the U.S. Department of Labor fiduciary rule set to take effect this April. What we do know is that the Trump administration has this rule in its sight, and there should be an executive order in the near future asking the DoL to either delay the implementation of the rule or rescind it altogether.

The fiduciary rule is aimed at retirement investing. It requires financial advisors to operate with their clients’ best interests at heart, and avoid conflicts of interest. The crux is the very definition of “fiduciary status.” It seeks to ensure people investing in 401(k)s, IRAs and other retirement accounts are receiving investment advice that meets a fiduciary standard.

According to FactSet research, the rule could save investors $4 billion a year, but it could also cost brokerages more than $4.5 billion to comply with the rule in the first year, and another $1 billion spent annually on “written disclosures, notices, and complying with the new reporting requirements.”

Suitability Standard

Registered investment advisors, by law, are already fiduciaries. In general terms, this regulation would impact primarily wire houses and brokerages—companies like Edward Jones and Wells Fargo—where brokers and advisors operate under a suitability standard.

For the ETF market, a repeal of the DoL fiduciary rule could move the goal post for the next $1 trillion in new ETF assets. In other words, it could slow the pace of ETF growth.

Many in this industry have looked at this regulation as a watershed moment for ETFs, wherein advisors everywhere would turn to low-cost ETFs to meet their fiduciary obligation. The expectations of a massive wave of new money flowing into ETFs on the heels of this rule are such that some project the U.S. ETF market to hit $3.5 trillion by early next year.

The DoL fiduciary rule is not the only financial industry regulation Trump is expected to address. He is also reportedly going to “scale back” the 2010 Dodd-Frank Act, according to MarketWatch.

Contact Cinthia Murphy at [email protected]