The first stage of an important new rule for anyone who uses a financial advisor will officially roll out on Friday. The
Department of Labor is moving forward with the first stage of the new fiduciary rule, a federal regulation requiring
financial advisors to act in the best interest of their clients.
Out With The Old, In With The New
Prior to the rule’s implementation, financial advisors who operate on commissions have been allowed to recommend investments
that may actually cost clients more than cheaper, better alternatives. In return, these advisors can legally receive higher
commissions.
The first stage of the fiduciary rule bars financial advisors managing retirement accounts from lying to or misleading clients
and charging unreasonable rates.
The fiduciary rule originated during the Obama administration, but is not scheduled to go into effect until this week. There has
been a lot of uncertainty surrounding whether President Donald Trump will allow the rule to take effect considering he has rolled
back a number of other Obama regulations.
Analyst's Perspective
New Securities and Exchange Commission head Jay Clayton has reportedly been working with Department of Labor Secretary Alexander
Acosta on a new, coordinated set of standards for investment advisors. A softer, Trump-era set of standards could be good news for
the investment advising business, Height Securities analyst Edwin Groshans said.
“We view the comments of Acosta and Clayton to be positive for investment advisors as it indicates DOL and SEC may work more
closely to develop a set of standards for investment advice that applies to retirement and nonretirement accounts,” Groshans wrote
on Wednesday.
Related Link: When The Financial
Sector Fuels Its Political Enemies
Unfortunately for the finance industry, the Obama version of the fiduciary rule will likely be fully in place before the
Trump administration can get a potential replacement put together, Groshans wrote.
Last month, UBS said the
fiduciary rule is an “underappreciated threat” to T. Rowe Price Group Inc (NASDAQ: TROW) and downgraded the stock to Sell. Traders should look for potential
volatility in the Financial Select Sector SPDR Fund (NYSE: XLF) as well as the fiduciary rule story unfolds in coming months.
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