Elder Law News

Court Overturns Obama Rule Protecting Investors Saving for Retirement

A U.S. court of appeal has struck down a Department of Labor rule that was intended to prevent financial advisers from steering their clients to bad retirement investments, but the Securities and Exchange Commission has proposed new regulations to at least partially address the same problem.

A U.S. court of appeal has struck down a Department of Labor (DOL) rule that was intended to prevent financial advisers from steering their clients to bad retirement investments, but the Securities and Exchange Commission (SEC) has proposed new regulations to at least partially address the same problem.

Prompted by concern that many financial advisors have a sales incentive to recommend to their clients retirement investments with high fees and low returns because the advisors get higher commissions or other incentives, in February 2015 President Obama directed the DOL to draw up rules that require financial advisors to act like fiduciaries. A fiduciary must provide thehighest standard of care under the law.

Several industry trade groups sued to overturn theso-called fiduciary rule, arguing that the DOL overstepped its authority in enacting the regulation. A federal court judge initially upheld the rule, but in March 2018, the U.S. Court of Appeals for the Fifth Circuit overturned it. According to the court, the DOL did not have the authority to enact the rule. The court criticized the DOL for overstepping its boundaries into an area that should be handled by the SEC. The Trump administration, which delayed the fiduciary rule at first, but eventually allowed it to go into effect, has not appealed the decision.

While the fiduciary rule might be dead for now, the SEC has proposed new regulations that would require investment brokers to act in the best interest of their client when recommending an investment. It also requires brokers to disclose or mitigate conflicts of interest. The proposed regulations do not, however, define what “best interest” means, which may cause confusion for brokers and consumers. There is a long road ahead before these regulations are approved. The SEC is accepting comments on the regulations until August 7, 2018.

Even if the SEC's regulations are approved, they do not solve every problem. Consumers should always use caution when selecting a financial adviser. In particular, consumers should check their financial adviser's experience and credentials and beware of phony credentials.

To read the proposed SEC rule, click here.

To read an article about the proposed rule from Bloomberg, click here.

 

About the author

Michele Ungvarsky

Michele graduated from law school in December of 1994. She practiced law in Albuquerque until 2009 when she relocated to the Las Cruces area. Michele has a unique understanding of issues facing families during disability and health crises because her mother and father (who was suffering from advanced Alzheimer’s) moved in with her. The family struggled with the health issues related to the costs and challenges of her father’s Alzheimer’s Dementia. That is why, Michele is committed to helping families “PLAN IT FORWARD” so there are comprehensive plans in place in the case of disability or death.