Fiduciary rule for advisors up in the air after Trump’s victory

An upcoming regulation that will affect investors' retirement accounts and the relationships they have with their advisors is hanging in the balance.

The U.S. Department of Labor is scheduled to enable its fiduciary regulation on April 10, 2017. As of that date, broker-dealers and financial advisors will be required to provide advice that is in your best interest.

The White House Council of Economic Advisers estimates that conflicts of interest by advisors cost savers $17 billion each year.

Now that Donald J. Trump defeated Hillary Clinton in the presidential election, financial services industry experts are uncertain about what may happen to the regulation in the new year.

"A rule is much more difficult to undo than a piece of legislation, so for now nothing changes," wrote Pamela Sandy, the 2016 president of the Financial Planning Association, in an e-mail.

"While it's too early to fully understand the intentions of President-Elect Trump and the incoming Congress with regard to the rule," she wrote, "our hope is he will continue the work of the current administration to safeguard the futures of millions of American retirees."

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Republicans, who have pushed against the fiduciary rule, are in the catbird seat following Tuesday's elections. Not only have they locked Trump's position as president-elect, they also maintain a stronghold in Congress.

Further, one of Trump's advisors said last month that the new administration would scrap the rule.

The combination of those factors is fueling pessimism among some experts that the fiduciary regulation will become a reality.

"The DOL's rule is basically on its last legs at this point," said Ron A. Rhoades, an attorney and assistant professor of finance at the Gordon Ford College of Business at Western Kentucky University. "It's difficult for it to be implemented, given the opposition in Congress."

On the flipside, others say that the rule is far along in the process, and it will be difficult to do away with it at this stage.

"The rule is becoming effective within 80 days," said Marcia Wagner, managing director of The Wagner Law Group in Boston.

"With all this on his plate, there is no way that Trump's going to move for revocation of the rule in that time," she said. "Given the short time frame, I think it will become effective."

Knut A. Rostad, founder of the Institute for the Fiduciary Standard, warned against assuming that the fiduciary regulation will be swept away under Trump's leadership.

"He is no party loyalist," Rostad wrote in a statement. "His instinct, as the world has witnessed, is more to challenge the Republican party than to go along with it."

"Where, exactly, the DOL rule fits in the Trump vision is just not clear as of now," he wrote.

Experts do warn, however, that things could change based on whom Trump appoints to oversee the Department of Labor.

"Trump could instruct whomever he appoints at the Labor Department to work on a new rule that will overturn the previous final rule," said Rhoades. "We had a similar situation nearly eight years ago."

Back in 2009, the Obama administration's Labor Department halted a Bush-era investment advice rule before it took effect.

Broker-dealers and financial institutions have been laying the groundwork for following the fiduciary rule, including changing their infrastructure and talking to clients about the regulation.

Merrill Lynch, for instance, has said it would stop offering new commission-based IRA brokerage accounts through its advisors as of the April date. As an alternative, clients will have three options for retirement-related advice: They can work with an advisor on a fee-basis, use commission-based self-directed brokerage accounts, or turn to Merrill Edge Guided Investing, a new fee-based robo-advisor.

Don't expect firms to scrap those updates, even if the rule is thrown out.

"Things have been going on behind the scenes with technology and processes, and none of that is undoable," said Denise Valentine, senior analyst in wealth management at Aite Group. "It's not like you cannot change what's already been occurring."

Should the law go into effect, anticipate greater fee transparency, the possibility of lower fees and a little more paperwork for IRA investors, said Wagner of The Wagner Law Group.

It remains to be seen what will happen to consumers should the regulation be eliminated, but Rhoades recommends that investors get educated.

"Consumers are going to have to accept responsibility," he said. "They have to be very careful in who they select for investment advice,and they need to choose people who are avoiding conflicts of interest."