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Brokers Change Their Game Plan

By Sandra Block
Kiplinger's Personal Finance

President Trump's executive order, which directs the Department of Labor to review the fiduciary rule for brokers who offer financial advice to investors with retirement accounts, will likely delay the rule's effective date of April 10 and could lead to its demise. But no matter what happens in Washington, the financial-services industry has made changes that are here to stay.

The fiduciary rule was developed to address concerns that some securities brokers encouraged investors to roll their 401(k) plans into IRAs composed of high-cost or inappropriate investments. The fiduciary standard requires financial professionals to put clients' interests above their own. Securities brokers currently adhere to the suitability rule; investments they recommend must be suitable given your age and risk tolerance, but they don't have to be the lowest-cost alternative.

Critics of the rule say the cost of compliance will discourage advisers from working with middle-income investors and those with small accounts. Nonetheless, well-known financial-services firms have already spent a lot of money making the transition to the fiduciary standard, and they're unlikely to turn back now, says Sheryl Garrett, founder of the Garrett Planning Network.

For example, Merrill Lynch said late last year that it will stop offering commission-based IRAs, in favor of fee-based accounts. Capital One Investing, the retail brokerage arm of Capital One Financial, also announced plans to scrap commissions on IRAs. Mutual fund companies that sell shares primarily through brokers, with a sales fee, have made changes, too. Capital Group, which manages the American Funds, has received approval to offer fund shares that will let brokers set their own commissions. Competitive pressure should lead to lower commissions for other broker-sold funds, says Micah Hauptman, of the Consumer Federation of America. And dozens of fund companies are planning to offer Class T shares, a new share class with an up-front cost of 2.5 percent (lower for large purchases), about half the cost of traditional Class A stock fund shares.

You can protect yourself by asking the right questions. The DOL recently published "Consumer Protections for Retirement Investors," which includes questions to ask a prospective adviser. Find it at

Trump has also called for a sweeping review of the Dodd-Frank law, enacted in the wake of the 2008 financial crisis. It raised capital requirements for banks, restricted trading activities and created the Consumer Financial Protection Bureau, among other things. The law was intended to protect the economy from another financial crisis, but critics say it has impeded economic growth. But only Congress can rewrite legislation, so significant changes are months away.

Editor’s Note: Sandra Block is a senior associate editor at Kiplinger's Personal Finance magazine,

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