Winners and losers in the murky DOL fiduciary rule implementation
The rule is well past the tipping point, and the industry is forever changed regardless of the rule change
February 21, 2017 | by Joe Duran | InvestmentNews.com
There’s plenty of speculation as to what will happen with the implementation of the Department of Labor rule that holds advisers for retirement plan participants to the fiduciary standard. Whether the rule is delayed, amended or implemented, only time will tell. In the meantime, let’s discuss the new uncertainty and its impact on the wealth management industry. We should all understand that the rule is well past the tipping point and the industry is forever changed regardless of the rule change. Let’s review the three key areas of impact.
1. How we deliver our services. The transition of advisers to the fiduciary standard has been occurring for well over a decade and most firms have been on a fast track to adapt over the past year and a half. While the DOL rule expands the application of the standard, the vast majority of brokers, even at the big brokerage firms, already have a growing plurality of their clients and assets being held to the fiduciary standard. The fastest growing segment of the industry is the independent RIA channel that already holds itself out as fiduciaries. The DOL rule might be an accelerant, but the move to the fiduciary standard for everyone is already happening.
2. How we get paid. As above, most advisers, whether independent or linked to a broker-dealer, have been shifting to fee-based compensation. The most vulnerable to a reduction or abolition of commissions in retirement plans are the independent broker-dealers. Roughly 50% of their revenue is commission-based, but many firms also receive sponsorship fees from vendors. As much as half of many independent broker-dealer assets are in retirement plans. The big full service wirehouses and banks can withstand the revenue setback, but the majority of independent broker-dealers work on razor-thin margins and cannot afford the loss of revenue. The large packaged product providers have already been suffering through asset outflows from expensive actively managed funds to low cost index products. Again, the DOL rule is an accelerant and its deferment would give the independent broker-dealers and mutual fund and annuity providers more time to adapt, but it doesn’t change the secular shift away to low cost index products and standalone RIAs.