How to Invest If Trump Kills the ‘Fiduciary Rule’

President Trump might scrap an Obama-era rule investment adviser rule set to go into effect in April. Here is how that could impact you -- and what you need to do next.

How to Invest If Trump Kills the ‘Fiduciary Rule’ Photo by goodluz / Shutterstock.com

Last week, President Donald J. Trump signed an executive order to trigger a review of the so-called “fiduciary rule.”

The rule — established by the Obama administration and set to go into effect in April — requires financial advisers to put their clients’ interests ahead of their own when offering retirement investment advice.

Proponents of the rule say it will prevent advisers from steering clients toward products that might not be in the clients’ best interests. As we explained in a story last year:

Currently, financial advisers who receive fees or other compensation are legally allowed to steer a client to an investment product that may not result in the highest return for the client, yet offers higher compensation to the adviser.

On the other hand, critics of the rule say it will limit the variety of investment services available to investors.

How to protect your money

For now, nobody knows the outcome of Trump’s order. Reversing the fiduciary rule might be easier said than done. On Feb. 8, a U.S. federal judge in Texas upheld the fiduciary rule, and some experts quickly predicted the decision would make it tougher to significantly alter the rule.

Prior to the ruling, a CNBC story reported that Trump’s main options included:

  • Delaying or rewriting the law
  • Refusing to defend it against litigation
  • Working with Congress to pass legislation that kills the rule once and for all

As the CNBC story notes, none of that is likely to happen quickly. But even if the fiduciary rule survives, it is not a panacea for investors. For example, it’s important to note that the rule’s protections extend only to retirement accounts — an often overlooked fact.

That means advisers will be allowed to ignore the rule when giving advice to clients in the nonretirement portion of a client’s portfolio.

And as Ron Lieber points out in the New York Times, even if the fiduciary rule survives, it would be foolish to blindly count on it to comprehensively protect you:

The definitions of “suitability” and “fiduciary” have always been (and will always be) open to much interpretation, no matter who is in the White House or trying to decide what food you’re served on your retirement investments buffet.

So, investors need to stay on their toes regardless of how the debate over the fiduciary rule plays out. What can you do to make sure you’re getting the best impartial advice?

In August, we zeroed in on four areas where you should focus when shopping for a financial adviser. They include:

  • Asking a financial adviser what he or she can do for you
  • Inquiring about how the adviser is compensated
  • Learning about the adviser’s credentials
  • Establishing performance benchmarks

For a more in-depth explanation about how to explore each of these areas, check out our story “How to Choose the Perfect Financial Adviser.”

How do you make sure you’re getting the best retirement advice? Let us know by commenting below or on our Facebook page.

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