Trump's order against fiduciary rule a step backward
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When President Trump issued his memorandum to the Department of Labor (DOL) calling for a study of its soon-to-be implemented fiduciary rule, millions of current and future retirement investors’ interests were effectively put on hold.

Created to ensure that individuals could count on advice for investing their trillions of dollars in savings to be in their best interests, the rule was a first step in pushing a reluctant financial industry into putting their clients’ interests ahead of their own.


The signal delivered by the president’s memo, however, is that our industry isn’t there yet. 


At CFA Institute, we believe this is a step in the wrong direction for investors and for our industry. Investment professionals must do what is right for their clients, especially when it comes to their retirement funds.

While not perfect, the DOL rule advanced the simple tenet that retirement advisers owe their clients a duty of loyalty, prudence and care, otherwise known as a fiduciary duty.

CFA Institute has always supported this bedrock principle, and we have incorporated it into our Standards of Professional Conduct for decades. We do so with the belief that everyone benefits when people in the investment industry put the interests of their clients ahead of their own.

Keep the good parts of Dodd-Frank

The DOL memorandum was part of a package of presidential actions affecting the financial industry issued on Feb. 3. An executive order (EO) in that package expressed a series of seven core principles for financial regulation.

The EO continued, calling on the Treasury secretary to determine whether laws, regulations, reporting and recordkeeping requirements, among other government policies, adhere to these principles. 

As I wrote just three weeks ago in this same space, policymakers need to balance the needs of companies with investor protections. Markets benefit when investors have trust that the same institutions that created such serious problems in 2008 will be held accountable in the future.

The Financial Choice Act, like Dodd-Frank, seeks this same goal, albeit through different means.

In the same way that we favor keeping the DOL rule because there is no certainty the SEC will act quickly, we favor keeping provisions of Dodd-Frank regulating too-big-to-fail banks because it is not certain that different regulations will be implemented.

We therefore strongly urge the president to keep those parts of Dodd-Frank that boost capital requirements, keep systemically important banks under a tight regulatory leash — including preventing them from engaging in proprietary trading — and make derivative products and markets more transparent.

All of these Dodd-Frank mandates have increased investor trust and should be retained to reduce the risk of another financial crisis. 

Client interests must always come first

It is the expected action against the DOL fiduciary rule, however, that concerns our members most. As our CEO Paul Smith has said, removing this rule would ultimately harm the very retirees who voted for President Trump in the November election.

In a sense, it would defy the role of government to protect the weak, in this case, through proper regulation.

To be clear, our hope is that the Securities and Exchange Commission (SEC) will produce a simple and comprehensive solution that covers all investment accounts.

We, like many others in our industry, have long advocated for an overarching SEC rule to address this issue, because we believe it can apply a more consistent and uniform fiduciary duty for all client accounts that receive personal investment advice.

Given the hesitancy of the SEC to do anything over the last several years, however, we fear President Trump’s memorandum is simply a move to return to status quo. We refuse to abandon the DOL’s fiduciary rule in the hope that the SEC may finally address this issue. 

Currently, only investment advisers registered with the SEC have this fiduciary responsibility, while brokers and registered reps are held to a lower,  “suitability” standard. Meanwhile, brokers called “financial advisors” are often paid referral fees by large fund managers to steer clients into their funds.

As a consequence, consumers may find themselves receiving conflicted advice and paying more for commission-based products. The net result is that many Americans will be left with less money for retirement. 

To us, a fiduciary duty is needed to protect investors who are at an informational disadvantage when compared to brokers and investment advisers. Despite the arguments expressed by opponents of the DOL rule, our industry has already taken action to comply with the rule and eradicate corrosive conflicts of interest.

Some firms are moving toward fee-based models, while others are increasing oversight and making changes to their product lines. Changing course now could reverse this progress.

Rather than suspend the DOL fiduciary rule, we strongly favor implementing the regulation in its current form to protect retirement investors now. In the meantime, work on developing a new and better Securities and Exchange Commission (SEC) rule can continue and be implemented when complete.  

Times may change, but our principles won’t

At CFA Institute, our Standards of Professional Conduct require that we act as investment professionals in the best interests of our clients. The regulatory environment may change, but our standards don’t.

Our organization is driven by principle, not politics, and we will continue to promote what is in investors’ best interests, regardless of developments in Washington.

Thankfully, it won’t be easy reversing course on important issues like investor protection — that can’t be accomplished with the stroke of a pen. In fact, we are hopeful that President Trump’s appointments to regulatory bodies, such as the SEC, will keep the long-term interests of Americans investors front and center.

However, when investors are at risk, CFA Institute will be a consistent voice to remind policymakers just who it is they represent. 


James Allen is the head of U.S. Capital Markets Policy for the CFA Institute, a global association of investment professionals. 

The views of contributors are their own and not the views of The Hill.