Singletary: Putting clients’ best interests first

This month, President Trump issued a memorandum ordering the Labor Department to “examine the fiduciary duty rule to determine whether it may adversely affect the ability of Americans to gain access to retirement information and financial advice.” He directed the department to “prepare an updated economic and legal analysis.”

You really think this rule hasn’t already gone through years of analysis? It’s been at least six years in the making. The Labor Department received more than 3,000 comment letters. A 2015 report from the White House Council of Economic Advisers, using independent research, estimated that conflicted advice cost investors $17 billion a year.

For the Color of Money Book Club for this month, I’m recommending you read for yourself what the fiduciary rule will do. At dol.gov, search for “Conflict of Interest Final Rule.” You’ll find a link for the actual rule posted in the federal register. For an explainer that will probably make more sense, here are two documents from the Labor Department (DOL), which argued for the rule under President Obama:

• “Department of Labor finalizes rule to address conflicts of interest in retirement advice, saving middle-class families billions of dollars every year.” Here’s the link: www.dol.gov/ProtectYourSavings/FactSheet.htm.

• “FAQs: Conflicts of Interest Rulemaking” can be found at www.dol.gov/featured/protectyoursavings/faqs. Be sure to read: “How can I know if my adviser is acting in my best interest?”

Next, go to Investopedia.com, which has a good history and summary of the arguments for and against the rule. On the homepage, click the link for “DOL Fiduciary Rule Explained as of Feb 3, 2017.”

Many financial industry groups and companies who oppose the rule argue that small investors will be hurt. They contend it could make it more expensive for them to provide advice to investors.

A federal judge smacked down a challenge to the rule. Chief Judge Barbara Lynn for the U.S. District Court for the Northern District of Texas wrote in her opinion, “The DOL reasonably found that institutions and advisers that are paid on a commission basis may very well make investment recommendations that benefit themselves, at the expense of plan participants and beneficiaries. Advisers who are paid in asset-based fee arrangements are not faced with such a conflict of interest.”

The order continues: “Because small differences in investment performance will accumulate over time, those differences can have a profound impact on an investor’s retirement income; as the DOL noted, an ‘investor who rolls her retirement savings into an IRA could lose 6 to 12 and possibly as much as 23 percent of the value of her savings over 30 years of retirement by accepting advice from a conflicted financial adviser.'”

I’ll be hosting an online discussion about the rule and any new developments on Feb. 23 at washingtonpost.com/discussions.

Michelle Singletary welcomes comments and column ideas. Reach her in care of The Washington Post, 1150 15th St. N.W., Washington, DC 20071; or singletarym@washpost.com.