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Trump Orders Review of Wall Street Ethics Rule

The Project On Government Oversight is closely following the Trump administration’s rollback of federal rules that increase governmental and corporate accountability and transparency. One such rule that may eventually get the axe is a forthcoming Department of Labor (DOL) regulation imposing a higher ethical standard on financial professionals who advise consumers about their retirement savings.

As we blogged last year, this financial adviser conflict of interest rule—set to take effect in April—will impose a fiduciary responsibility on stockbrokers, financial planners, and insurance agents when providing advice to clients about their IRA and 401(k) accounts. This means they must put “their clients’ best interest before their own profits,” according to a DOL fact sheet on the rule. The current standard only requires advisers to have a “reasonable basis to believe” an investment recommendation is “suitable” for the client. The Obama administration estimated that investors lose $17 billion annually to advice that is not in their best interest and is instead motivated by the fee or commission the adviser stands to earn. (The exact amount investors lose to conflict-tainted advice remains a point of contention among financial experts.)

On Friday, President Trump issued a presidential memorandum directing DOL to review this rule “to determine whether it may adversely affect the ability of Americans to gain access to retirement information and financial advice.” If such potential adverse effects are found, the memorandum requires DOL to rescind or revise the rule.

The financial industry has been fighting this rule since it was first proposed in 2010. Brokerage firms and trade groups have spent millions on lobbying and campaign contributions. They have funded grassroots lobbying campaigns designed to stoke public outrage with overheated rhetoric about the rule’s potential impact. Online broker TD Ameritrade set up a web page urging the public to send DOL and Congress a form letter stating that the rule “would undermine my ability to plan for my retirement” and that “the government has determined that I am not smart enough to make my own informed investment decisions.” Language from this letter found its way into many of the thousands of public comments DOL received during the rulemaking process.

The well-funded opposition has been successful in delaying the rule. However, the protracted fight over the rule has had some positive consequences. It has made the public more savvy about the brokerage industry. It also spurred some firms to change their sales practices to comply with the rule.

We hope the review of the rule will be a fair assessment, with a careful balancing of its burdens and benefits. After all, we can think of nothing that would have a greater adverse effect on Americans’ ability to gain access to retirement information and financial advice than allowing that information and advice to be biased or misleading.

By: Neil Gordon
Investigator, POGO

Neil Gordon, Investigator Neil Gordon is an investigator for the Project On Government Oversight. Neil investigates and maintains POGO's Federal Contractor Misconduct Database.

Topics: Financial Sector

Related Content: Ethics, Lobbying, Financial Oversight

Authors: Neil Gordon

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