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Betterment balances hope and concern for fiduciary rule's destiny

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When the Department of Labor fiduciary rule was finalized last year, Betterment CEO Jon Stein was among the digital-first executives celebrating its signing in Washington.

But on Monday, instead of observing the rule going into effect, Stein was flanked by fiduciary rule supporters at Betterment's midtown Manhattan office, saddened by its 60-day delay and mulling its potential repeal.

"It was supposed to be a great day for investors," Stein said. "[I'm concerned] investors are not going to get what they deserve. At the moment there's so much attention on this issue, people are asking their advisers if they are fiduciaries. I worry that if the rule doesn't go through, all of that goes away, and the industry reverts back to the same old practices."

The Labor Department pushed backed the regulation's applicability date to June 9 from April 10 in order to complete a review ordered on Feb. 3 by President Trump. Based on criteria laid out by Trump, the department could revise or entirely rescind the fiduciary rule after completing its review.

The controversial regulation has drawn vociferous criticism from some quarters in the industry; industry trade groups launched several unsuccessful lawsuits to derail the regulation before its implementation date.

Betterment, however, has been outspoken in its support for the fiduciary rule, even publishing a national ad campaign exhorting Trump to leave the rule in place.

The industry's leading independent robo advice platform is taking steps to continue the dialogue with policy makers in Washington, said Seth Rosenbloom, associate general counsel. It's one of two key political initiatives for the digital advice firm, the other being a defense of open access to client financial data.

"The opponents of this rule are very-well organized, they have a lot of money at stake, but we have the advantage of being a pro-investor voice," Rosenbloom said. "Whether it's advocating against further delay, whether it's advocating to protect the rule or whether the battle moves to specific provisions and specific changes, we're going to continue to engage."

"It was supposed to be a great day for investors," said Betterment CEO Jon Stein.

Stein acknowledged "a great amount of support for the rule and we want to continue to encourage that support during this delay period," as well as an internal debate among staffers over whether the digital advice firm would gain an advantage over competitors if the rule were repealed.

The chief executive said that Betterment's support of the fiduciary rule was not motivated by business interests. A number of industry analysts have predicted digital advice providers like Betterment would benefit from the rule by capturing smaller retirement accounts jettisoned by large firms unwilling to service them.

"It doesn't affect our business," Stein said. "We're going to do what's in the best interests of our customers regardless of whether this rule goes through or not. We're fans of this rule because it's unquestionably good for our customers."

Maureen Thompson, vice president of public policy at the Certified Financial Planner Board of Standards, said that fiduciary advocates were encouraged by the volume of letters submitted in support of the rule during the comment period, but noted that Labor Secretary nominee Alexander Acosta characterized the regulation as a governmental overreach.

"We're both hopeful and recognize the challenge that we have," she told her fellow panelists. "I'd say we have better than a 50/50 chance [for the rule to survive]. I think it's a tough fight to preserve what's good about the rule."

In order to overturn the regulation, a rule-making process has to be adhered to, according to Micah Hauptman, financial services counsel at the Consumer Federation of America.

"They can't just wave a magic wand and kill the rule," Hauptman said, adding that advocacy groups in support of the rule were not willing to accept even a watered-down version at this time.

"The rule itself is a compromise," Thompson said.

Stein capped the discussion with a call for less debate and more cooperation within the industry.

"The partisanship of some of these things always baffles me," he said. "At the end of the day we all want the same things. We have a problem in America of retirement savings not being enough for what people need. We all want to encourage more retirement savings."

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