An FSI-sponsored study finds initial costs of the Department of Labor's fiduciary rule to be nearly 20 times the DOL's estimate.

Among the many arguments made by opponents of the Department of Labor’s proposed fiduciary standard for retirement account advisors, one comes with an actual price tag: the cost of implementing the rule. And the estimated dollar amount, according to a new study, is eye-popping: $3.9 billion.

Conducted by Oxford Economics, the study arrives at this figure by factoring in startup costs to implement the rule, an amount that is nearly 20 times DOL’s preferred cost estimate. This amount does not take into account additional expenses incurred as a result of investors’ losing access to advice or the costs of maintaining compliance with the rule.

The study also argues only high net-worth investors will be able to access and afford professional retirement investment advice if the DOL rule is implemented as now drafted.

“This study shows that the DOL’s proposed fiduciary rule would be costly and burdensome to both the independent financial services industry and the investors that rely on the critical advice they receive,” said FSI President & CEO Dale Brown. “It also illustrates the unintended consequences the rule will have on hard-working Americans trying to save for retirement, particularly low and moderate-income investors who need advice the most.”

Among the report’s additional findings:

  • The DOL has dramatically underestimated the compliance cost of the new rule and how difficult it will be for small firms to survive if it is implemented.

  • The proposed rule will result in estimated startup costs ranging from $1.1 million to $16.3 million per firm, depending on firm size.

  • Broker-dealers and investment advisors would be forced to either substantially change their current business models or navigate the challenging demands of a new “Best Interest Contract Exemption” (BICE).

  • The rule will result in less access to advice from financial advisors for small and medium-sized investors. One unintended consequence: minority investors with small asset holdings will have a harder time seek advice from financial advisors.

  • The proposed rule will result in industry consolidation that will likely force small broker-dealers out of business.

  • An expanded potential for systemic risk in the retirement savings market as savers are increasingly pushed into the same set of standardized “low-cost” assets.

The report represents a close reading and critique of the Department’s Regulatory Impact Analysis, acknowledging comments published on the topic. Oxford Economics also conducted data gathering with the help of FSI, a professional organization representing independent financial services firms and independent financial advisors.

See an executive summary of the report here.