Trump wrong in delaying stricter rules for brokers

When you place your health in the hands of your doctor, you do so with the expectation that he or she will do you no harm.

Likewise, when you hire a lawyer, there’s a belief that he or she will put your interests above those of others.

And, when you share your innermost thoughts with your spiritual adviser, you do so with the expectation of confidentiality.

In other words, it’s all about placing your trust in someone else.

Just as important as a person’s physical, spiritual and legal well-being is the protection of retirement investments.

Indeed, after the devastation of the nation’s economy fueled by the Great Recession that began in 2008 and lasted several years, retirement accounts took a beating, forcing many Americans in the private sector to keep working beyond their intended retirement dates.

It also forced many workers to place their faith in the advice and guidance of their financial professionals.

This dependence prompted the administration of former President Barack Obama to develop a series of rules with one goal in mind: protection of the investors.

The rules were set to take effect in April, but with the stroke of a pen, President Donald Trump has put them on hold – pending a Department of Labor review.

Trump, who has moved quickly since he was sworn in Jan. 20 to cancel many Obama initiatives, seems to have forgotten a promise he made during the campaign to blue-collar workers: to secure their jobs and help restore the financial losses they incurred during the recession.

His decision to suspend the rules that are designed to govern the behavior of financial professionals runs counter to what he promised.

Stricter standard

Under the so-called “fiduciary rule,” brokers who sell stocks, bonds, annuities and other products would have to do more than just make sure the investments they recommend are “suitable” for clients, the Associated Press reported. Brokers would have to meet a stricter standard that has long applied to registered advisers: They will be considered “fiduciaries” – trustees who must put their clients’ best interests above all.

Full compliance of the rules was targeted for January 2018.

The Associated Press noted that there’s a lot of money at stake, which is why the Obama administration sought to put in place the protections: $4.5 trillion in 401(k) retirement accounts, $2 trillion in other defined-contribution plans such as federal employee plans, $7.3 trillion in IRAs.

Regulators charge that too often brokers steer clients toward questionable investments for which the brokers receive fees. The brokers thus act in their own financial interest instead of a client’s.

The Obama administration had said that investors would save about $4 billion annually under the rules.

Not surprisingly, the financial industry, which has found a strong ally in the Trump White House, countered that companies would have to shell out more money just to comply with the rules.

Financial firms also argued that stricter rules will likely shrink Americans’ investment options and could cause brokers to abandon retirement savers with smaller accounts.

An increasing number of Americans seek guidance in formulating their options for retirement savings, and many professionals provide advice.

However, not all are required to disclose potential conflicts of interest.

Problems arise when people who are retiring “roll over” their employer based 401(k) assets into individual retirement accounts. Brokers may persuade them to put those assets into variable annuities, real-estate investment trusts or other investments that can be risky or otherwise not in the client’s best interest.

The recession caused many companies to freeze pension plans or stop matching 401(k) contributions. As a result, retirees don’t have the luxury of losing money due to bad investments.

To be sure, each person has the responsibility to clearly identify investment goals and to let his or her broker know the level of risk that’s acceptable.

However, with all the loopholes that now exist with regard to the activities of brokers, federal protections are necessary.