BlackRock and Vanguard have called on US officials to delay the introduction of landmark rules set to govern America’s $16tn retirement industry just weeks after President Donald Trump ordered a review of the controversial measures.
The world’s largest asset managers warned that the imminent introduction of the so-called fiduciary rule, which was endorsed by former US president Barack Obama, risks confusing investors and adding unnecessary costs for the financial industry.
The rule, which is due to come into force in April, was intended to put an end to hidden fees and conflicts of interest in the investment market. In February Mr Trump’s administration ordered the Department of Labor to re-examine the legislation, which requires financial advisers to put their clients’ interest first.
Bill McNabb, chief executive of Vanguard, which manages $4tn for investors around the world, said the rollout of the regulation should be pushed back by at least 12 months.
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In a letter responding to a DoL notice earlier this month requesting feedback on a plan to delay the rule for 60 days, Mr McNabb wrote: “Vanguard strongly believes that investors should always receive investment advice that is in their best interest, and those who provide investment advice should be held to a fiduciary standard.
“At the same time, we want regulations as far-reaching as the [fiduciary] rule to be well-crafted and thoughtfully implemented to limit investor confusion, disruption and cost.”
Mr McNabb added it was “unrealistic” to expect the DoL to carry out a full review of the rule within 60 days.
Mr Trump ordered the DoL to revise or scrap the rule, which the Obama administration predicted would generate $17bn annually in cost savings for American workers and retirees, if it found the measures would limit savers’ access to financial advice or increase litigation against advisers.
The new regime is expected to lead to a rise in financial advisers recommending cheaper passive funds over expensive actively managed products that pay a commission. BlackRock and Vanguard, which have large passive fund ranges, were expected to be among the winners of the measures.
Barbara Novick, vice-chair of BlackRock, which oversees $5.1tn for investors, also backed a delay, arguing that the long-term future of the rule was uncertain in light of the president’s calls for a review. She said a failure to delay its implementation would “cause confusion to individual investors”.
“Given this lack of certainty, the current April 10 2017 applicability date would impose unreasonably high costs and operation burdens on the financial services industry,” she added in a letter to the DoL.
Many in the finance industry have been vocal critics of the fiduciary rule, arguing the regulation would be costly to implement. A study from AT Kearney, a consultancy, last year predicted that implementing the regulation could cost the brokerage industry $11bn in revenues over the next four years.
There are also fears that the rule could inadvertently hurt investors. Last year, the Investment Company Institute, the trade body for asset managers, warned that investment advisers could drop clients with less money due to restrictions on commission payments.
But Melinda Steuer, a lawyer who works with investors in dispute with their financial advisers, urged the DoL to immediately implement the legislation.
“When financial advisers are allowed to put their own interests ahead of their clients, human nature dictates that the clients will not be well served. Retirees lose an enormous amount of wealth due to conflicted financial advice,” she said.
Knut Rostad, head of the Institute for the Fiduciary Standard, a non-profit organisation that has lobbied for advisers to be legally obliged to put their clients first, added: “It is absolutely essential for investors that this rule stays in place.
“It would be a travesty if it is removed or if it is significantly altered by the new administration. There is no doubt that it is important.”
Forty Democrat politicians, including Maxine Waters, a member of the committee on financial services, a group at the House of Representatives that oversees the US financial services industry, have also urged the DoL to prevent a delay of the measures.
“Workers and retirement savers deserve better and have waited long enough,” they said in a letter to the DoL.