Baltimore-area financial advisers react to Trump's hold on fiduciary rule

Baltimore-area financial advisers react to Trump's hold on fiduciary rule

Some Baltimore-area wealth managers welcomed President Donald J. Trump's decision to delay and review an Obama-era financial rule that would change how they provide advice about retirement investments, while others expressed disappointment.

Trump issued an executive order late Friday to put a 90-day hold on the so-called fiduciary rule, which was supposed to take effect in April, and called on the U.S. Labor Department to evaluate whether it should be altered, eliminated or left as is.

Advocates for the rule argue it would put everyday investors' interests ahead of the industry's.

Wall Street lobbying groups, mutual fund companies, life insurance firms and other industry interests have opposed the rules, saying the requirements could limit people's choice of investment products and restrict access to financial guidance.

Under the rule, proposed by the Obama administration last February, brokers who sell mutual funds, stocks, bonds, annuities and other products must meet strict standards requiring them to put their clients' best interest above all else when giving investment advice.

In the past, brokers were required to ensure only that the investments they recommended were "suitable" for their clients, which supporters of the rule said potentially exposed investors to high fees and questionable advice that could chip away at their retirement savings.

The rules apply to about $4.5 trillion in 401(k) retirement accounts, plus $2 trillion in other defined-contribution plans such as federal employees' plans and $7.3 trillion in IRAs, according to the Investment Company Institute.

"We're putting people's future at risk," said Karyl Leggio, a finance professor at Loyola University Maryland, who thinks the rule should be allowed to take effect. "People are living longer, they need to have a means of enjoying themselves at some point and most wait too long to start saving. They need some protection."

David Berman, co-founder of Berman McAleer in Timonium, initially supported the idea of the rule when it was announced in February 2016, but he's changed his mind.

"This is the single best example of something I've ever seen that was genuinely well-intentioned and that we resoundingly cheered when it was announced, and would have been a complete train wreck because of the details and the unintended consequences that no one, us included, comprehended when it was first laid out," Berman said.

Strict reporting and accounting requirements would limit the investment options Berman McAleer could offer clients, Berman said.

Most of the firm's clients have at least $1 million in assets, but on occasion Berman McAleer took on the smaller portfolio of a client's adult child or elderly parent. Because of the pending rule, Berman said the firm had to cut ties with those clients because it would be too costly and risky to manage them.

"This regulation was making it so much more expensive to do accounts and exposing us to the threat of litigation that we just couldn't be doing this ancillary business," he said.

Leonard Raskin, president and CEO of the Hunt Valley financial planning firm Raskin Global, welcomed the decision to take another look at the rule.

Like Berman, Raskin applauded the rule's intent when it was announced but said, as written by the Labor Department, it puts too great a burden on advisers to act as fiduciaries.

"An adviser should always have the client's best interest when they give advice," he said. "But this regulation went way further."

His firm was in the process of revising its client agreements and setting up a new fee structure to comply with the rule.

"We're in a big wait-and-see moment right now," Raskin said.

Other Baltimore-area advisers were disappointed by Trump's order.

Philip Snyder, president of Snyder Asset Management in Timonium, said he thinks the rule is an important protection for savers and a check on advisers who work on commission.

"You're not working with clients — you're trying to sell something to them," Snyder said of commission-based investing.

Snyder's firm practices fee-based advisory services in which clients are charged fixed fees.

"Fee-based, you really have nothing to sell," Snyder said. "You're just trying to have a portfolio that will grow."

Too often, regulators have said, brokers steer clients toward questionable investments for which the broker receives a commission, thereby acting in their own financial interest instead of the client's.

The problems arise when people who are retiring "roll over" their employer-based 401(k) assets into individual retirement accounts. Brokers may persuade them to put those assets into variable annuities, real estate investment trusts or other investments that can be risky or otherwise not in the client's best interest.

Regardless of whether they supported the change, wealth managers have spent months preparing to comply with the new rule and some said they're not planning to put the brakes on their plans.

T. Rowe Price Group Inc. has begun evaluating how the delay will affect the firm and its clients, "although it's important to note that some of the changes we are making align with our strategic priorities and our long-standing belief in putting client needs first," said Brian Lewbart, a spokesman for the Baltimore-based money management firm with $810.8 billion under management as of Dec. 31.

Those efforts will continue regardless of the delay, he said. For example, T. Rowe plans to forge ahead in debuting a new offering, called T. Rowe Price ActivePlus Portfolios, which will invest clients' portfolios based on their responses to a risk tolerance survey and will not have additional fees.

The new offering is T. Rowe's answer to online robo-advisers, which make investments automatically, based on algorithms.

Legg Mason, whose affiliates managed about $710 billion at the end of the year, also expects many of the trends addressed by the fiduciary rule to continue regardless of the regulation's fate, driven by investor preferences.

"They will continue to want greater transparency, lower fees, and to access investment strategies through various means," said Mary Athridge, a spokeswoman for Baltimore-based Legg, in a statement. "We expect many of our distribution partners to continue their plans, and have already done the work to meet their needs."

While Raskin and Berman believe that the industry needs a fiduciary standard, they said the Labor Department's rule puts too great a burden on advisers and could create a litigious environment, with clients suing if they lose money.

Berman suggested the Labor Department isn't the right agency to execute a fiduciary, saying it might be better from the Securities and Exchange Commission, which is responsible for enforcing financial security regulations.

"Firms like ours need to take up arms and push for a proper fiduciary standard for everyone in our industry," he said.

The Associated Press contributed to this article.

sarah.gantz@baltsun.com

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