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Does the demise of the US Department of Labor’s fiduciary rule — expanding the requirement for retirement advisers to act in their client’s best interest — mean savers are again vulnerable to deceit? The answer depends on the respondent.

The fiduciary rule intended to help protect investors from advisers and broker-dealers who give conflicted recommendations for their own profit. This was costing US families around $17bn a year, according to a White House statement made when the rule was published in April 2016.

The rule was expected to affect especially broker-dealers, those who execute a client’s trade. Currently, their recommendations are held only to a suitability standard, unless they are dually registered as advisers. The suitability standard requires only that a recommendation is suitable to the investor. Advisers were already held to a fiduciary standard, meaning that a recommendation had to be in the best interest of the client.

But the US Court of Appeals for the Fifth Circuit ordered the Department of Labor to vacate its rule in March, finding that it had overstretched its authority.

The retrenchment is reflected in the views of the retirement advisers in this year’s FT 401 list. Fees have replaced regulation as the most pervasive challenge.

Barbara Roper, a Colorado-based director of investor protection at the Consumer Federation of America, is disappointed that “we are back where we were”. The onus once again falls almost entirely on retirement investors to protect themselves, she says.

Ira Hammerman, general counsel of the Securities Industry and Financial Markets Association (Sifma), which represents securities companies, banks and asset managers, takes exception to the idea that the rule’s demise has disadvantaged retirement investors.

Mr Hammerman says that even if brokers are not held to a fiduciary standard, they are under very strict oversight and subject to harsh enforcement of rules by the Financial Industry Regulatory Authority, which self-regulates the brokerage industry, and the Securities and Exchange Commission.

Since the court decision, the definition of a fiduciary in the advisory area reverts to decades-old rules, according to lawyer Marcia Wagner, a Boston-based managing director at The Wagner Law Group. The Employee Retirement Income Security Act of 1974 says a person is a fiduciary if the individual provides investment advice for a fee.

The Department of Labor followed that up in 1975 with a five-part test to show what is considered investment advice: if it is regarding the value of securities or other property, or advice on investing; if it is provided regularly; if it is pursuant to a mutual agreement or understanding; if it is the primary basis for investment decisions; and if it is individualised.

Ms Wagner says the department “clearly felt” the five-part test provided insufficient protection for investors, which is why it was motivated to craft its fiduciary rule. Among other things, the fiduciary rule required retirement advisers to have their clients sign a Best Interest Contract Exemption document if there were any potential conflicts of interest in the advice they gave them.

Without the rule, Ms Wagner expects the department to enforce its five-part test in “a more aggressive manner”, particularly when considering whether the advice is provided on a regular basis.

Participants in 401(k) DC plans are “generally well protected”, Ms Wagner says. That is because the company sponsoring the plan or committee administering it are fiduciaries under the 1974 act, and those fiduciaries are expected to monitor the activities of advisers in managed accounts under these plans.

Regardless of the rules meant to protect retirement investors, Michael Aylward, an adviser at RBC Wealth Management and among this year’s FT 401, says he believes the “best protection for retirement investors has always been financial education”.

Mr Aylward says part of his focus is to provide financial literacy for his clients — the companies sponsoring the retirement plans — and the employees, or retirement plan participants. Most of his clients have between $5m and $50m in total employee retirement accounts.

“We feel it’s critical for people to take ownership of their retirement planning and understand what needs to be done,” Mr Aylward says.

Retirement plan investors are potentially vulnerable at the point when they are deciding whether or not to transfer from their workplace plan to an individual retirement account.

A large portion of assets held by Americans are in retirement assets, which account for one-third of all household financial assets in the US, according to the Investment Company Institute, which represents regulated funds globally.

Total US retirement assets reached $28tn as of March 31, according to ICI. Around $9.2tn was in IRAs and around $7.7tn in defined contribution plans, while the rest were in defined benefit plans or annuity reserves.

Hoping to plug the hole left by the fiduciary rule, in April the SEC unveiled a proposed “Regulation Best Interest” package for all brokers and advisers — not just retirement advisers.

The proposed package establishes a standard of conduct for brokers, interprets the fiduciary standard for advisers and also creates a new customer relationship summary form telling clients whether they are dealing with a broker or an adviser.

The proposal has been supported by trade associations, such as Sifma. But consumer protection groups have highlighted the absence of a definition of the term “best interest”, the lack of an ongoing duty of care, and the minimum requirement for brokers to merely disclose and mitigate conflicts of interest.

Aron Szapiro, director of policy research at Morningstar, says the SEC’s proposed best interest rule should do more to ensure that recommendations to transfer 401(k) accounts to IRAs, for instance, are not motivated by what brokers or advisers stand to gain. This, he says, is the “most obvious area where you can really flesh out” the broker’s best interest obligation.

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