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President Trump Signs Financial Executive Orders

On February 3, President Trump signed two executive orders aimed at rolling back stricter regulations in the financial sector that could negatively impact seniors who invest money.  The Dodd-Frank Act, signed into law by President Obama in 2010, is one of the regulations in the crosshairs of the Trump administration. The Dodd-Frank Act was enacted as a response to the Great Recession in an attempt to decrease various risks in the financial system, such as banks using customer funds for their own speculative investing, and engaging in risky mortgage lending. Dodd-Frank also established government oversight agencies for the financial system.
 
One of the agencies under fire is the Consumer Financial Protection Bureau (CFPB) whose authority includes governing against predatory lending practices and abusive debt collection. The Trump administration seeks to roll back these regulations and the influence of agencies such as the CFPB, citing that they are too expensive to enforce and that the US financial system needs to be competitive with other countries. Lisa Donner, executive director of Americans for Financial Reform, thinks otherwise. She states, “It would be ending the kind of enforcement approach that has put 11.8 billion back in consumers’ pockets.” This executive order makes no immediate changes, but requires the heads of regulatory agencies to come up with suggestions to alter financial regulation to make it “efficient” and “foster economic growth.”  
 
The other executive order President Trump signed on Friday took aim at slowing down the implementation of the “fiduciary duty” rule written by the Department of Labor and finalized in June of last year. This rule is slated to go into effect on April 10 of this year and would impose stricter regulations on financial advisors when they are investing for a client’s retirement. In the past, investment advisors were able to choose funds for their clients that were “suitable” to meet their retirement goals, but not necessarily giving them the best investment opportunity for their money. This allowed advisors to pick funds that fell in the “suitable” category, but also pick ones that paid large commissions, sometimes at the expense of a lower return. Trump has ordered the Labor Department to stop the process of implementing the rule and has called for a complete review of three areas:
  • Whether the rule may harm investors due to reduced options for retirement accounts
  • If the rule will cause a change in the retirement advice industry “that may adversely affect investors or retirees”
  • Whether the rule will cause an increase in litigation with clients who believe their advisor is not acting in their best interest, driving up the prices that retirees or investors may have to pay for access to retirement services.
According to the order, if any of these criteria are met, the Secretary of Labor must either revoke or revise the rule. Although, even if the rule is revoked, many brokerage firms have already altered their business models to be more transparent with clients and only buy securities that are in the client’s best interest. It is unlikely these brokerage firms would revert back, and as it turns out, being fully transparent with your clients is just good business, and many retirees are moving their savings to firms who do just that. In the event that this rule is revoked, seniors will need to be adamant when seeking retirement investment advice. It is a substantial burden for seniors who are forced to change their retirement plans and work longer due to decreased returns from financial advisors putting their retirement before the client.  It will be important to select investment firms who guarantee that they don’t choose investments based on commissions, but based on which fund provides the best return. 
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