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There's A New Sheriff At The SEC: What's It Mean For The Fiduciary Standard?

There's A New Sheriff At The SEC: What's It Mean For The Fiduciary Standard?
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The first stage of an important new rule for anyone who uses a financial advisor will officially roll out on Friday. The Department of Labor is moving forward with the first stage of the new fiduciary rule, a federal regulation requiring financial advisors to act in the best interest of their clients.

Out With The Old, In With The New

Prior to the rule’s implementation, financial advisors who operate on commissions have been allowed to recommend investments that may actually cost clients more than cheaper, better alternatives. In return, these advisors can legally receive higher commissions.

The first stage of the fiduciary rule bars financial advisors managing retirement accounts from lying to or misleading clients and charging unreasonable rates.

The fiduciary rule originated during the Obama administration, but is not scheduled to go into effect until this week. There has been a lot of uncertainty surrounding whether President Donald Trump will allow the rule to take effect considering he has rolled back a number of other Obama regulations.

Analyst's Perspective

New Securities and Exchange Commission head Jay Clayton has reportedly been working with Department of Labor Secretary Alexander Acosta on a new, coordinated set of standards for investment advisors. A softer, Trump-era set of standards could be good news for the investment advising business, Height Securities analyst Edwin Groshans said.

“We view the comments of Acosta and Clayton to be positive for investment advisors as it indicates DOL and SEC may work more closely to develop a set of standards for investment advice that applies to retirement and nonretirement accounts,” Groshans wrote on Wednesday.

Related Link: When The Financial Sector Fuels Its Political Enemies

Unfortunately for the finance industry, the Obama version of the fiduciary rule will likely be fully in place before the Trump administration can get a potential replacement put together, Groshans wrote.

Last month, UBS said the fiduciary rule is an “underappreciated threat” to T. Rowe Price Group Inc (NASDAQ: TROW) and downgraded the stock to Sell. Traders should look for potential volatility in the Financial Select Sector SPDR Fund (NYSE: XLF) as well as the fiduciary rule story unfolds in coming months.

Posted-In: Financial Advisors News Futures Politics Legal Markets Personal Finance General Best of Benzinga


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