Most insurance and financial advisors are concerned that the U.S. Department of Labor’s proposed “investment advice fiduciary rule” will harm advisor-client relationships, interfere with advisors’ ability to serve retirement investors and increase costs, according to a new survey.
The National Association of Insurance and Financial Advisors (NAIFA) discloses this finding in a survey of 1,111 NAIFA members who offer retirement planning products for clients. Respondents each complete an average of 153 fixed annuity sales, 627 variable annuity sales, 3,895 401(k) plan rollovers and 3,235 IRA rollovers in a year.
The proposal mandates that advisors receiving commissions, revenue-sharing and other third-party compensation sign “best interest contracts” with clients before making recommendations.
Two-thirds of advisors surveyed say they anticipate a loss of business following the rule’s implementation because they believe:
1) Clients would be intimidated or unwilling to sign the required contracts required under the proposal; and
2) The burdensome data retention and disclosure requirements would make affordably serving small or medium-size accounts impossible for advisors.
More than 6 in 10 respondents (61 percent) say the contract requirement is likely to harm their relationships with existing clients. Some 35 percent say the harm done to those relationships would be “significant.”
Only 4 percent of respondents say the contracts would improve relationships with existing clients. And 36 percent say either the contract will have no effect on relationships or they are not sure.
“Requiring a person to sign a contract while you are asking them to open up to you about their financial situation would be very disruptive for some clients,” says NAIFA President Juli McNeely. “They may not understand why they need to sign something just to have a conversation, especially if this is a person you’ve been working with for years. More paperwork does not always mean more peace of mind.”
Nearly 87 percent of advisors who responded to the survey said they anticipate that implementation of the DOL rule would result in higher errors and omissions insurance premiums for their practices. Of those, 58 percent say they expect E&O premiums to increase “substantially.”