On Friday, the Trump administration financial deregulation movement kicks off with executive orders calling for the repeal of Dodd-Frank and the fiduciary rule.
What’s happening?
Created by the Obama administration, the “fiduciary rule,” was set to become active in April of 2017. It mandated that financial advisors act in the best interests of their clients, as opposed to themselves or their firms, when handling accounts for things like retirement plans and IRAs.
Gary Cohn, Trump’s chief economic advisor, on the soon-to-be-scrapped rule:
They thought they were trying to protect investors in their retirement accounts. But by ‘protecting investors,’ they highly limited their choices. I don’t think you protect investors by limiting choices.
He went on to add that the rule is the equivalent of removing from a menu all the unhealthy food that tastes good, in order to force people to eat healthy food.
Here is a separate take on the rule, by Kiplinger columnist Steven Goldberg:
The rule would prohibit brokers from providing advice that lines their pockets instead of looking out for clients’ interests. Under the rule, for example, it would be difficult for a broker to justify selling a client a high-fee mutual fund when an identical or similar fund is available at a much lower price.
Particularly alarming to financial services firms is that the rule would permit class action lawsuits against firms that violate its provisions.
What is a fiduciary anyway?
GenFKD recently explored the difference between fiduciaries and financial advisors in an interview with HighTower CEO Elliot Weissbluth.
One of the fastest growing investment firms in the field, HighTower’s selling point is that all of its financial advisors adhere to the fiduciary code:
For decades, traditional financial advisors lulled their clients into believing that they had their best interest in mind, when they were really “manufacturers and purveyors of financial products,” as Weissbluth’s company calls them. Inherently, the traditional arrangement can often create conflicts of interests.
“We’re the only company that successfully merged the sophisticated infrastructure of the research and technology of Wall Street coupled with the fiduciary duty,” Weissbluth said. “We brought them together into one business.”
In an analysis of the rule, Vox cited a report by BrokerCheck which claimed that areas with less college graduates and more retirees “experience more misconduct, and employ more advisers with past misconduct records.”
Thus the implication that “financial misconduct is more prevalent in areas with a less financially sophisticated, older population and less educated individuals.”
Other rollbacks
The likely reversal of the fiduciary rule comes among a much larger plate of financial deregulation by the Trump administration, as indicated by another planned executive action for the rolling back of Dodd-Frank – the set of financial regulations enacted in the wake of the 2008 financial meltdown.
“This is a table setter for a bunch of stuff that is coming,” Cohn told the Wall Street Journal.
Cohn, a former Goldman Sachs executive like Treasury Secretary Steve Mnuchin, flatly insisted that the measures are not about benefitting the banks themselves.
“It has to do with being a player in a global market where we should, could and will have a dominant position as long as we don’t regulate ourselves out of that,” Cohn said.
The news comes amid a busy stretch for the Trump administration, one involving multiple high-profile executive actions aimed at limiting immigration and foreign trade.
Goldman’s $285 million payment to Cohn upon his departure to the White House also raised at least one eyebrow.
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