The Fiduciary Rule and Dodd-Frank


Donald Trump issued executive orders recently to begin weakening two provisions designed to protect consumers and provide oversight for financial services.

The DoddFrank Wall Street Reform and Consumer Protection Act, signed into law in 2010 by President Obama, is designed to force banks to comply with federal regulations and oversight that will stop banks from engaging in the practices that led to the Great Recession. President Trump’s executive order did not rescind Dodd-Frank, rather it began a process of review that will lead to weakening the Act. President Trump also began the process to undo the fiduciary rule which requires financial advisers to put their clients’ financial interests ahead of their own.

It might be instructive to first review the cost to taxpayers of financial industries that ran with little oversight or regulation:

  1. In the 1980’s the Savings and Loan Crisis cost taxpayers 201 billion dollars (or 405 billion in 2016 dollars) due to a combination of lax regulation, corruption, and greed.
  2. While 201 billion dollars is a lot of money, it is a small sum when compared to the Great Recession at the end of George W. Bush’s presidency which cost taxpayers 16.8 trillion dollars – though many economists think that the costs are still being calculated.

Given that the economy improved significantly over the last eight years (with unemployment under 5% at the end of President Obama’s term) there is little evidence that the economy for most Americans is struggling under the weight of Dodd-Frank regulations. It seems more likely that Dodd-Frank is a hindrance for the wealthy to get much wealthier. We are being asked to trust the very people who led us to the brink of a depression, cost millions of Americans their jobs and homes, and plummeted the world into a financial crisis that many countries are still trying to recover from.

Abolishing the fiduciary rule and weakening Dodd-Frank both mean that Americans will have to rely on the financial industries to regulate themselves – something that sometimes works and sometimes doesn’t. It’s just that when it doesn’t work the impact on average Americans is significant and consequences for the leaders in the financial services industries and banks are minimal.

These executive orders will not improve the economy or bring back jobs to average Americans. Candidate Trump railed against Wall Street at his campaign events – now that he is surrounded by Wall Street executives in his White House, he is making it easier for them to create another crisis.

Image Credit/Boston Globe