With all the controversies and conflict dominating the news cycle, it would have been easy to miss the fact that over a year ago, President Donald Trump signed an executive order rolling back the fiduciary role signed into law in the previous administration. The law, which was scheduled to go into effect in April 2017, made it harder for financial advisers to give conflicting advice and required them to put their clients’ interest ahead of their own. Though advocates of this action argue that the law was “a solution in search of a problem,” there is significant concern that eliminating the law’s protections will invite securities fraud.
Those in favor of rolling back the law claimed that it was bad for consumers and limited their choices. Former White House National Economic Council Director Gary Cohn said, “This is like putting only healthy food on the menu because unhealthy food tastes good but you still shouldn’t eat it because you might die younger.” But others, including Massachusetts Senator Elizabeth Warren, argue that without the laws’ protection, investors are more vulnerable to being cheated.
The specifics of the law are fairly straightforward. It recognized that financial advisors could easily be tempted by referral fees paid by asset managers into directing their clients’ money into funds that might not be in their best interests, and explicitly required that what is best for the client must always have primacy. It may surprise the average investor to learn that was not always the case. The only financial professionals currently required to act in this way are those registered as investment advisers with the Securities and Exchange Commission, or who work in states with that specific requirement. The requirements for all others fall far short, and only require that the investment is “suitable.” Advisers can offer funds that are too expensive for a client, or that offer them higher commissions, all without the investor realizing that these types of conflicts exist.
Where the new law made financial advisers accountable, the financial industry argued that it would boost compliance costs. Whether that will come to pass or not is questionable, as, in anticipation of the law, many firms have already taken internal action. However, if you believe that you have been the victim of securities fraud, you have certain rights. For more information, contact our firm to set up an appointment.
