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Trump Thwarts Action On Dodd-Frank Investor Protection

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Pablo Martinez Monsivais
/
AP
President Donald Trump holds up an executive order after his signing the order in the Oval Office of the White House in Washington on February. The executive order will direct the Treasury secretary to review the 2010 Dodd-Frank financial oversight law.

On Friday President Donald Trump signed an executive order to delay the so-called “fiduciary rule,” which is aimed at protecting unsophisticated investors.

David Mendals is an investment advisor. One day in 2008, a client came in. "He was at that point in his late 80s and we were going over various investments that he had and one of them was an annuity he bought at his local bank."

Mendals was alarmed because this annuity was totally inappropriate for an investor in his near-90s. The tax penalties cost far more than the interest earned, but Mendals's client didn't know that.

"He was a smart fellow, but his wife took care of all the investments and she had just recently died, and, you know, you trust your banker."

In this case, trust cost the investor money, while the banker pocketed a $3,000 commission.

"People don't understand that. They don't understand that this person's job is to sell."

The new rule, written by the Department of Labor, was supposed to go into effect in April. It aimed to protect investors like this. But now the Trump administration is reconsidering it.

They could do a number of things, and the Republican-control Congress will have a say, too. And so will Francis Creighton, a lobbyist for the banking sector.

"We at the Financial Services Roundtable strongly believe there should be a best interests stand for all transactions. We, however, believe that's best achieved at the Securities and Exchange Commission."

In the past, the SEC has struggled to write rules like this because they are governed by a bipartisan commission. Consumer advocates worry that if the SEC takes charge, the rule will either wither and die or get watered down. But the reason finance companies want the SEC in charge is because penalties for wrongdoing would be handed out by SEC judges not courts.

"The problem with going to court is that there's no way to quantify what's going to happen because you're handing things off to a jury."

Creigton says it's less about fearing multi-billion dollar jury verdicts as opposed to consistency. Businesses can follow whatever rules are in place, he says, but they can't stomach the huge changes in enforcement between different administrations.

But remember that client in his 80s we talked about before? Investment advisor David Mendals says the SEC wouldn't have been able to help him.

"The bank would have been unaffected because the SEC does not govern insurance sales and this particular product was an insurance sale."

Trump's executive order delays implementation of the rule until August. Consumer advocates have signaled that they will sue to keep the rule in place.

This article originally stated that lobbyist Francis Creighton participated in drafts of the executive order. He reviewed those drafts and made recommendations.