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Dodd-Frank and the Fiduciary Rule

Posted by Corey F. Schechter | Mar 21, 2017 | 0 Comments

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was intended to regulate parts of the financial industry to reduce risk, increase accountability, and protect consumers. The law was, in part, a reaction to the most recent recession, with the goal of reducing the likelihood of future financial industry bailouts. The Trump administration is looking to push back against Dodd-Frank reforms and delay some of the reform rules before they have even been put into place.

According to President Obama, the reform that would become Dodd-Frank would involve a “sweeping overhaul of the United States financial regulatory system, a transformation on a scale not seen since the reforms that followed the Great Depression.”

Major reforms included the Volcker Rule, which prohibited banks from making certain speculative investments; regulations for the derivative market; and changes to mortgage standards. Dodd-Frank also included consumer protection reform, changes to fiduciary accountability, and the creation of a Consumer Financial Protection Bureau.

One of these reforms included the so-called Fiduciary Rule. The Fiduciary Rule requires financial advisers to act in the best interests of their clients regarding retirement planning, holding these financial advisors to an ERISA fiduciary standard expanding the definition of “investment advice fiduciary” under ERISA. The Department of Labor (DOL) was supposed to introduce the new rule by April 10, 2017.

However, under a memorandum issued by President Trump on February 3, 2017, the Rule would be delayed 180 days. The delay instructed the DOL to make an economic analysis of the rule's impact on investors and the financial industry. The memo also directed the DOL to change or replace the rule if the new rule harmed investors or financial firms.

The DOL has in the last few days issued a memorandum providing temporary relief from enforcement of the Fiduciary Rule (See FAB 2017-01), regardless of whether the Rule is implemented on April 10, 2017, or delayed past that date.

According to Trump and the financial industry, the Fiduciary Rule is burdensome, over complex, and raises the costs of products available to investors. They claim lower and middle-income investors will be priced out of access to financial services. “Dodd-Frank is a disaster,” said Trump. “We're going to do a big number on Dodd-Frank.”

However, consumer rights advocates and supporters say a fiduciary rule is necessary to protect investors from conflicts of interests, including financial advisors pushing investments that benefit the advisors at the expense of investors. Groups including the AARP and AFL-CIO support the Fiduciary Rule. Without the Fiduciary Rule, financial advisors are not required to act in the best interests of their clients. They can recommend investment in high fee funds, for which they receive a substantial commission.

Butterfield Schechter LLP is San Diego County's largest firm with a focus on employee benefits legal services, ERISA litigation, and business counseling. If you are unsure how your company or employee benefits may be impacted by changes to Dodd-Frank or implementation of the Fiduciary Rule, contact our offices for a consultation. Our firm can help you establish a custom benefits plan that conforms with regulatory requirements and represents the best interests for your company and employees. Contact our office today with any questions on how we can help you and your business succeed.

About the Author

Corey F. Schechter

Corey Schechter practices in the areas of Employee Benefits, Employee Stock Ownership Plans, Pension and Profit Sharing Plans, ERISA, ERISA Litigation, Business Law, Qualified Domestic Relations Orders (QDROs), and Employment and Labor Law.

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