About 20 years ago, Alan Greenspan, then chairman of the Federal Reserve, uttered the words “irrational exuberance” in reference to what he saw as expensive market conditions. Today, that may be exactly what we’ve seen with the increase of over 14 percent in the Russell 2000 Index since the election of Donald Trump.

I believe prices were already high prior to the November election and they have continued to increase into 2017, but I could rationalize a higher price for a business if corporate tax rates were to drop from 35 percent to 15 percent and much of the recent regulatory burden were to be rolled back.

Being a free market capitalist, I believe government should represent a smaller percentage of the economy and that regulation should be minimal. Achieving those goals are among the promises that many voters are expecting the new administration to fulfill.

What President Trump will do about one particular regulation—the Department of Labor’s new fiduciary rule regarding retirement accounts—has the asset management industry collectively holding its breath. The new rule, issued in the final days of the Obama Administration, requires brokers and advisors to act in their clients’ best interest when giving advice related to retirement plans governed by the Employee Retirement Income Security Act of 1974, known as ERISA.

While the intention behind the regulation is noble, it is likely to have unintended consequences. Despite the fact that the rule doesn’t take effect until April 10, 2017 (if at all), we’ve witnessed the flight from actively managed to passively managed products accelerate. Lower-cost index funds and exchange-traded funds (ETFs) have benefitted because brokers and advisors know they will have a harder time justifying recommending products with high fees under the rule. In its latest fund flows report (November 2016), Morningstar reported that $359 billion of assets left active funds over the previous 12 months, and a significant amount of those dollars have contributed to the $480 million in net inflows to passive strategies over the same time period.

Generally speaking, cheaper is better. I see few no-load funds bought directly from the distributor. Most are likely purchased through an intermediary who charges their own fees, reducing some of the savings from using low-fee funds. When the market is exhibiting low volatility and moving up, it appears almost free and easy to implement an index strategy. It is neither.

My fear for the public is two-fold. First, to ensure compliance with the DOL rule, many financial intermediaries may feel compelled to sell “mom and pop” an index or ETF in their IRA rollovers, right about the time we will most likely enter a bear market. Keep in mind that equity indexes fell about 50 percent peak-to-trough in 2000-2002 when the dot-com bubble burst and in 2007-2009 during the housing crash. Second, the number of fund share classes available to smaller investors, which tend to have higher expense ratios due to economies of scale, is likely to contract, potentially cutting off those with $250,000 or less of investable retirement assets from access to entire swaths of the investment industry. I’d rather be wrong on this, but I don’t believe I am.

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