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The Fate of the Fiduciary Rule

It’s hard to turn on the news without hearing about a variety of confirmation hearings for several of President Trump’s appointees, and lately they’ve been focused on Alexander Acosta, the appointee for head of the Department of Labor. The fate of the impending fiduciary rule has taken center stage as Massachusetts Democratic Senator Elizabeth Warren has made it her mission to address the topic (among various others, of course). Here’s a look at why this specific issue matters to your wealth-building strategy, according to a recent article from financial news outlet, TheStreet.com.

The new fiduciary rule is a change to the set of rules that currently regulate how financial advice is given. Under the new rule, financial advisors can no longer favor investment products that give them personal kickbacks over other tools that would produce better long-term yields for their clients, in addition to prohibiting “tricks of the trade” that profit investment professionals at the expense of retirement savers. This issue is especially important because the rule is scheduled to take effect on April 10, and because Trump has vowed to overturn it. The opposition claim that it could cost the advisory industry as much as $20 billion in lost profits.

Acosta has stated that he would support Trump’s lead in overturning the fiduciary rule, which has caused great controversy with his potential appointment, specifically with Warren. She has been a defender of the rule from the onset, arguing that it would not only put an end to unethical sales, but also boost retirement savings.

“It’s far too easy for an advisor to sell just one more annuity, regardless of whether it is a prudent choice for the investor, when a free vacation or an international cruise is waiting for him on the other side of the sale,” she stated.

While the rule isn’t specifically geared towards annuity products, use of the financial tool has been widely chosen given the nature of the product and the fees often associated with them. In general terms, an annuity is a policy you purchase from an insurance company using a (large) lump sum of money in exchange for repayment of your money, including interest, at a later date. Many offer guaranteed lifetime payments, an incentive that is very attractive to retirees who are fearful of outliving their savings.

Some industry experts predict that the implementation of the fiduciary rule will drive annual annuity sales down by more than 30%. Herein lies the biggest argument against the fiduciary rule. Many retirement planning professionals fear that the rule would unfairly impact smaller and independent retirement advisors, who might not have the ability to shoulder the cost of complying with the new regulations. In 2011, the U.K. passed a similar rule, and since then the number of financial advisors has dropped by nearly 23%.

Alexander Acosta, a Florida attorney,  is Trump’s second nomination for Secretary of Labor. He is currently serving as Dean of Florida International University of Law and was previously South Florida’s federal prosecutor during the Bush administration. Acosta also was Assistant Attorney General for the Civil Rights division of the American Department of Justice from 2006-2009. While he definitely exhibits conservative leanings, Acosta has earned support of many democrats in addition to the United States Hispanic Chamber of Commerce, who believe Acosta may bring “strong bipartisan and cultural perspective” to the Trump administration. The Senate is expected to decide on Acosta’s nomination this month.

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