The fiduciary rule is dead, but its spirit lives on.
The rule, which the Department of Labor first proposed in 2015, required brokers to act as fiduciaries — to put their clients’ interests ahead of their own — when handling retirement accounts. It sounded simple, but it meant that brokers would have to rethink the way they do business.
Mutual fund companies routinely pay brokers to sell their funds to clients. That payment is often an annual fee for as long as the client is invested in the fund — a particularly pernicious conflict of interest that gives brokers incentive to keep clients in high-priced and often poorly performing funds. As fiduciaries, brokers would most likely have to abandon the practice or at the very least disclose it to their clients.
Brokerage firms scrambled to comply with the rule, and no one made more sweeping changes than Bank of America Corp.’s Merrill Lynch. It publicly supported a fiduciary standard and introduced more investment options for clients than ever before. The company stopped offering traditional brokerage accounts to retirement savers and rolled out conflict-free alternatives, including discount brokerage, fee-based advisory accounts and a low-cost automated investing, or robo-adviser, service.
Given Merrill’s size and influence, other brokers were likely to follow. It looked as if the fiduciary rule was having its intended effect: cleaning up conflicts, broadening investment options and lowering costs.
Then came a bombshell. A federal appeals court in New Orleans struck down the fiduciary rule in March. The Labor Department said it would no longer enforce it. When the agency later declined to appeal the decision, the fiduciary rule was officially dead.