The Norman Transcript (March 12, 2017) – The fiduciary rule, which would require retirement advisers to act in the best interest of their clients, is set to go into effect on April 10, but in a Feb. 3 memo, President Donald Trump directed the Department of Labor to review the rule.

On Wednesday, the Trump administration proposed a rule to delay the new fiduciary measure for another 60 days with a 45-day comment period.

While the fiduciary rule has been in the press for the past month, much of the coverage has gone to what will happen to the rule, or the opinions of those with a direct, financial reason for wanting the rule to be disregarded or put in place.

The Norman-based Public Investors Arbitration Bar Association represents investors in dispute with the securities industry. Though it’s not an investment firm, it too could experience a negative impact if the rule goes into affect.

“As an investor, prospectively or currently, if you thought there was wrongdoing in your account, you could contact one of your members for assistance, and hopefully he or she would be able to help you,” PIABA Executive Director Robin Ringo.

Ringo said if the rule is affective, the lawyers in their association could be out of a job because there would be fewer ripped off investors to represent. But they still support the rule and have lobbied on its behalf.

“I’ve been working on the fiduciary rule for six years,” Ringo said. “We absolutely support that rule because we think it is in the best interest of consumers, investors if you will, to have protections in place. And we think it is in their best interest financially too to have the guarantees by the fiduciary rule.”

On Wednesday, she was preparing to fly out to Washington D.C. for over 120 scheduled meetings with senators, representatives and Congressional staffers about different measures affecting investors, including the fiduciary rule.

She said the first thing someone should do as a potential advisor is ask if they are held to a fiduciary standard, or a suitability standard.

“A fiduciary is required to act in your best interest,” Ringo said. “If you hire a registered investment advisor, that person is already required to act in your best interest. If, on the other hand, you were to hire a broker, a broker dealer, that person is required to meet what is known as a suitability standard, which means they can tell you that they’re acting in your best interest, but they have no legal obligation to do that.”

Ringo gave an example of investing $1,000, and knowing that an investment advisor will charge a 1 percent management fee.

There could also be some fees attached to the investment.

“I think it would be very unusual for someone to put money into a Schwab account and not be charged an investment fee for that account. That fee could be a half percent up to 2 percent or 3 percent, depending on what type of investment fund it is,” Ringo said. “In general the DOL, in specific regards to retirement accounts, has suggested these should not exceed 1 percent.”

Those who are required to meet the suitability standard are paid on commission, which could be a half percent upwards of 7 percent or 10 percent on top of the fund fee.

Ringo said that doesn’t mean the fund isn’t suitable for that investor, depending on what kind of risk tolerance they have expressed to their broker.

But two investments options with the same risk assessment might have different commissions for the broker, meaning they can put investors in a fund, charging a 3 percent commission or a 7 percent commission in Ringo’s example, making it more likely a broker will put their investor in the fund with a higher commission fee.

“The return is supposed to be the same, which is what makes it suitable for you,” Ringo said. “What makes it unsuitable, is the broker charging you an additional 4 percent to get you into that fund, but that is what is required by the rule.”

Ringo said that isn’t the only problem with the investing without a fiduciary rule.

“If you do find something wrong with your account down the road, and it’s with a brokerage firm or a broker dealer, you can’t bring a case based on a fiduciary standard. You can only bring a case based on a suitability standard,” Ringo said. “I say that, you can bring a case based on anything, but you’re less likely to win a case based on a fiduciary standard because it’s not required.”

The fiduciary rule would only enforce the fiduciary standard on retirement accounts. Any other investment could be handled by a broker in the same manner as before.

“I think it’s interesting to know, that several of the big brokerage firms have already made the move to the fiduciary standard and they’re continuing, they’re not going backwards, what I would consider to be backward,” Ringo said. “They are moving forward with the fiduciary standard.”

She pointed to Merrill Lynch’s early elimination of commission IRA business in October 2016 as an example.

One of the main concerns expressed by brokerage firms is a fear that the lower income investors would be unable to reach the minimum investment levels for service set by investment advisors.

Ringo said that is an understandable concern, but many brokerage firms have already created automated, self-directed advisory services for customers who want to make smaller investments.

“Anything you can do to deter someone from doing something bad is a good thing,” Ringo said.

Ringo said investors want to work with advisors they know have their best interest in mind. The fiduciary rule means they can get that guarantee with their retirement investments.

“Most people are good,” Ringo said. “Most brokers and investment advisors go through life trying to do the right thing all the time and just bad things happen. Sometimes, in fairness to representatives of companies, they’re misled, they get caught up in a situation that is just ugly. But there are instances that if someone is bad, they can be really bad, and they can harm a lot of people.”