A rule meant to make it easier for retirement savers to trust their financial advisers began its long-awaited rollout June 9. But investors may not want to let their guard down just yet.
Implementation of the retirement rule, which requires brokers working with retirement savers to put their clients' interests ahead of their own, marks a major victory for consumer advocates, lawmakers and retirement groups who have been pushing for the regulation for more than six years. The rule, originally slated to take effect in April, was delayed by two months after President Trump signed a memo asking the Labor Department to re-evaluate the regulation and determine if it is harmful for investors. Last month, Labor Secretary Alexander Acosta announced that he could not delay the rule any further.
Yet even as supporters of the regulation celebrate the milestone, many of them are reminding savers that the fight isn't quite over.
"We won an important battle, but the war goes on," said Barbara Roper, director of investor protection for the Consumer Federation of America and a long time advocate for the rule.
Sen. Elizabeth Warren, D-Mass., who worked with the Obama administration to promote the rule, posted a video to Twitter June 9 congratulating consumers for the "huge" accomplishment. Still, she cautioned people to "stay alert," because the "Trump administration may come back again and try to take down the rule."
The fiduciary rule has faced robust opposition from Republicans and industry groups since it was first introduced by the Labor Department in 2010. But efforts to kill or weaken the rule intensified after the election, when Republican victories in Congress and the White House provided more momentum to people who say the rule will raise legal costs and limit options for investors. One provision tucked inside of a sweeping regulatory reform bill that was passed by the House of Representatives on Thursday would repeal the fiduciary rule and block the Labor Department from proposing a new fiduciary standard until after the Securities and Exchange Commission proposes its own rule.
SEC Chairman Jay Clayton announced earlier this month that he would be seeking input about the fiduciary rule, a sign that the agency could propose its own changes. And when the Labor Department announced that the rule would take partial effect starting in June, it said full enforcement of the regulation would not start until January. Acosta also made it clear that the department would continue to review the rule and changes could be made in the future.
Supporters say the fiduciary rule can help protect ordinary savers from hidden fees and conflicts of interest in retirement advice that could eat into their savings. Such conflicted advice costs retirement savers about $17 billion a year, according to estimates from the Obama administration -- though some consumer advocates say the real cost is actually much higher.
Until now, brokers working with retirement savers were only required to make sure the investments they sold were "suitable" for their clients. For instance, a broker choosing between two similar investment products could recommend the option that will pay them the most, even if it comes with slightly higher fees for the investor. But starting Friday, brokers are required to make recommendations based on what is best for the saver. The rule also requires brokers to disclose conflicts of interest, such as when they are paid by a third party for selling a particular product.
Proponents of the rule say it is supposed to clear up one of the biggest challenges savers face when they turn to financial professionals for help: They may not understand the complicated investment strategies they're being offered. And many people may not realize they received questionable advice until after they've lost money.
Charlene Furnari, 73, hired a broker about 10 years ago to help her move her retirement savings from a 401(k) plan into an individual retirement account. The retired secretary said she trusted him to create a conservative portfolio that would help her savings last. But she later learned that she the broker had invested a chunk of her savings in an expensive variable annuity, real estate investment trusts and in an oil and gas partnership, a complicated investment product with high fees and volatile performance.
"It was for his benefit," said Furnari, who dropped the broker in 2013 and hired a financial adviser who built her a simpler portfolio made up mostly of low-cost index funds. "I didn't have a clue what was happening."
Some financial firms and industry groups say the rule may have the unintended consequence of limiting savers' options. For example, some brokers may eliminate investment options with different fee structures that they fear will face more scrutiny under the rule, leaving customers with fewer choices, said Lisa Bleier, managing director and associate general counsel for the Securities Industry and Financial Markets Association, a trade group.
But even if opponents succeed in revising the regulation, the rule-making process has already set off a series of changes in the industry that could benefit consumers. Over the past several months, brokerage firms have lowered fees, designed new mutual fund share classes with simpler fee structures and eliminated some commission-based retirement accounts.
"Markets are already moving in this direction," said Cristina Martin-Firvida, director of financial security for AARP. "People saving for retirement absolutely are demanding this now."