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Fiduciary Rule that Benefited Retirees Killed By Court

Updated: May 29, 2020

When you go to your financial adviser for retirement investment guidance, do you expect to be given advice that is in your best interest? It seems like a no-brainer. But a recent federal appeals court decision means financial advisers will be permitted to once again serve two masters, without having to tell you – the owner of the assets - whose interests they’re really serving.

Back in 2016, the Association of BellTel Retirees. in its tireless advocacy work surveying the retiree landscape, noticed a rule being debated at the federal Department of Labor (DOL), under the Obama Administration. The agency was in the process of deciding whether financial advisers who serve as fiduciaries should be required to act in the best interests of their clients when giving investment advice.

It hardly seems worth debating! Under the old rules, an adviser could secretly take fees from mutual funds or other investment vehicles and then steer clients’ money into those investments, whether it was in the best interests of the client or not. The adviser would be “double dipping,” getting paid to give you advice while not disclosing that they were also getting paid – perhaps even more - to send your money to their second master.

At the time, the White House Council of Economic Advisers determined that conflicts of interest among investment advisors directly lead to about 1 percentage point in annual losses for retirement savers, costing investors to lose about $17 billion per year of their savings and investments.

The Council also calculated that an individual could lose an astonishing 25 percent of his or her savings over the course of 35 years of investing were this to continue. The Association and ProtectSeniors.Org quickly petitioned the Department of Labor for standing in the matter and registered the point of view in the best interest of our members.

Investment advisors acting in their own best behalf and not retirees best interest was unwelcomed. We also got the word out to members and registered strong support for changing this rule to require that financial advisers only serve one master: Their clients. The DOL did change the rule but was then sued by several financial industry associations.

The Fifth Circuit Court of Appeals – the same court that ruled against our derisked Verizon retirees – vacated the rule, holding that the DOL did not have the authority to require financial advisers to act in the interests of their clients.

Most recently under the term of President Trump, the Department of Justice (DOJ) chose not to appeal the ruling, allowing it to stand and sending theissue to federal Securities and Exchange Commission to decide whether to impose a similar rule.

With no one to defend the vacated rule, AARP, as well as the attorneys general of the states of New York, California and Oregon, tried to jump in, filing to join the case as defendants of the 2016 DOL rule change. In May, the Fifth Circuit ruled they did not have the legal right to join the case and left the rule for dead. While the DOJ had until June 13 to appeal the ruling, given its past decision to let it stand, that seems unlikely.

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