Investors should beware when evaluating brokers

Here’s a fair question for President Donald J. Trump, who’s toying with the idea of doing away with a federal rule that would require certain financial professionals to act in their clients’ best interest when providing retirement advice:

Do you insist that the individuals responsible for managing your very, very large investment portfolio put your financial interests above theirs?

Of course you do, Mr. President. After all, you campaigned on your success as an internationally renowned real-estate developer. The iconic Trump brand is a testament to your business acumen, you said.

So, if Trump has the ability to protect his vast fortune by insisting on complete loyalty from his financial professionals, why would he want to deprive hard-working Americans with much less money to lose of the same protections?

In late January, the president asked for a 90-day delay in the so-called “fiduciary rule” from taking effect. The rule, contained in the Dodd-Frank Act that tightened regulations after the 2008 financial crisis, was to take effect in April.

Trump, who has tapped Wall Street bigwigs to serve in his administration, has called Dodd-Frank a disaster.

The fiduciary rule would require brokers who sell stocks, bonds and other investments to meet the stricter standard that has long applied to registered advisers. As a fiduciary, a broker would be required to place the interests of his or her clients first.

Currently, brokers can provide financial advice as long as it’s “suitable” for the age, finances and risk tolerance of the clients. But there is no rule that stops brokers from pushing an investment that earns a higher commission nor are they required to disclose that.

Registered investment advisers, on the other hand, are considered “fiduciaries” and must disclose any fees, commissions or potential conflicts of interest.

While this issue has not garnered the level of public attention surrounding other Trump initiatives, it is of singular importance given the uncertain financial futures of many Americans.

Great Recession

As we noted in an editorial earlier this month, the devastation of the nation’s economy triggered by the Great Recession of 2008 played havoc with Americans’ retirement accounts.

Losses in 401(k) plans, coupled with private-sector employers freezing or eliminating company pension plans, forced many non-public employees to keep working beyond their intended retirement dates.

Last week, U.S. Rep. Tim Ryan of Howland, D-13th, hosted a conference telephone call with Ohio reporters and invited other Democratic members of Congress from Ohio to weigh in on the president’s decision to stop the fiduciary rule from taking effect. U.S. Sen. Sherrod Brown of Cleveland and and Rep. Marcy Kaptur of Toledo expressed their concerns about the president’s decision.

Also participating in the call were Micah Hauptman, financial services counsel of the Consumer Federation of America, and Barbara Sykes, director of the Ohio AARP.

Ryan said that the absence of a fiduciary rule governing brokers costs Americans about $17 billion in retirement savings.

He and the other participants dismissed the warnings that investment costs would rise if the fiduciary rule were left intact. They also brushed off the contention that some investment houses would stop accepting smaller clients and would stop providing free investment advice because of the fear of being sued.

But Congressman Ryan insisted that the warnings are without foundation and that he and his colleagues are committed to making sure that Americans’ retirement accounts are secure. He contended that regulating brokers the way financial investment advisers are regulated is in keeping with President Trump’s campaign promise to protect the interests of America’s working men and women.

The Department of Labor, which is reviewing the fiduciary rule, is required to accept public comments, according to Hauptman of the Consumer Federation of America.

The bottom line is for investors to heed the warning long applied to all consumer activity: Buyer beware.