President Trump on Friday signed a memo asking the Labor Department to review the fiduciary rule, which requires brokers working with retirement savers to put the interest of their clients ahead of their own. (Nicholas Kamm/AFP/Getty Images)

Rules and regulations exist to let us know what behaviors we should expect from the people we do business with. Sometimes, good sense or social convention overtake these rules -- and they don't matter so much. Just about everyone wears seat-belts these days (we all know how much they improve our odds of survival in an accident); the ranks of underage smokers have plummeted (it's no longer cool). Once the toothpaste is out of the tube, as they say, there's no cramming it back in.

Such is the case with the Department of Labor’s fiduciary rule. On Friday, President Trump asked the Labor Department to review the rule, which requires brokers working with retirement savers to put the interest of their clients ahead of their own. After years of work on it, the regulation was finalized last year by the Obama administration.

At first blush, this looks like a big way the Trump administration could directly affect everyday investors. As it turns out, whether the fidicuary rule hurts you isn't up to Trump -- it's up to you.

Let me explain. Whether it is overturned by the Trump administration is besides the point. The Labor Department has already taken the key language offline (you can see the earlier text here). Even before the government announced the new standard of care for advisers on retirement accounts, the public had figured it out: Investors have been moving away from high-cost, conflicted advice (with undisclosed kickbacks to brokers on the side) and toward low-cost investment advice where the adviser acts transparently in the investor’s best interests.

They have voted with their feet, and with their dollars.

Long before the 2011 staff report of the Securities and Exchange Commission (Study on Investment Advisers and Broker-Dealers) recommended a uniform fiduciary rule for all investors, the industry was moving in that direction. The fiduciary rule is not shaping investor behavior, it is now catching up with it. It has been six years since the SEC study suggested the standard; while the commission has been stalemated by politics and the Labor Department by the new administration, they are both now far behind the curve.

Consider:

-- Vanguard, the industry leader in low-cost indexing, has attracted $3 trillion since the 2008 financial crisis. It now manages about $4 trillion.

-- Blackrock, the world’s largest investment firm, runs over $4 trillion. It notes that it is a “fiduciary for our clients” regardless of whether the new rule is implemented

-- Software-managed investing (aka robo-advisors) and Hybrid (robo/adviser combos) will be $100 billion in the next few years. They already are managing almost $75 billion, according to Michael Kitces, an expert on the advisory business. Kitces notes that just the top five robos – Vanguard Personal Advisor Services (over $40 billion), Schwab Intelligent Portfolios (over $10 billion), Betterment (over $7 billion), Wealthfront ($5 billion) and Personal Capital ($3.4 billion) – alone account for $65 billion in assets under management.

Had it gone into effect as planned in April 2017, the fiduciary rule was likely to have accelerated the process of money moving from expensive and conflicted advice to advice that is lower cost and in the clients’ best interest. Changing the new rule implementation plan won’t stop the underlying trend – at worst it might slow it somewhat.

Regardless, the change is now inevitable. Industry expectations, based on an A.T. Kearney study, are that by 2020, “the DOL’s new fiduciary rule will result in a $2 trillion asset shift” that will save investors roughly $20 billion by not having to pay commissions.

Look at the biggest wirehouses as an example. They had begun a shift toward fee-based accounts several years ago. Three years ago, 27 percent of Morgan Stanley’s client assets were fee-based; today $855 billion of $2.1 trillion in assets, or more than 40 percent of client assets, are in fee-based accounts. The shift is similar for Bank America Merrill Lynch’s more than 14,000 advisers – they report an increase from brokerage to fee-based for their $2.1 trillion in client assets. The trend was similar for Wells Fargo’s $480 billion in assets under management.

In the early 2000s, retail investors whose investments were at these big firms had commission-based brokerage accounts. The primary rules that covered the behavior of brokers were from FINRA, the industry’s self-regulating organization. As you would imagine, letting the industry regulate itself led to all manner of expensive, opaque, conflicted advice that often worked against the interest of the investor, and toward the broker’s financial interest.

Investors have decided that Caveat emptor is not what they want governing their retirement accounts. Having the fiduciary rule in place would surely protect those investors who have yet to figure out who is really working for them. It would be nice to discover that the new administration was more “investor friendly.” But it was not the rules that moved the big firms toward a fee-based business model – market forces did.

Whether the fiduciary rule stays or not, the investing public has figured out what the proper standard should be. Investors are not waiting for the government to make the finance industry put investors’ interests first. As market forces have revealed, they are insisting on it themselves.

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