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March 14, 2016 at 05:11 AM
Both broker-dealer reps and RIAs believe the Department of Labor’s pending fiduciary rule will have a negative impact on their businesses, according to a survey by Fidelity Institutional.
Tom Corra, COO of Fidelity Clearing & Custody, said in an interview Friday that advisors see the DOL fiduciary rule as “more dramatic than any other regulation over the past five years.” In addition to the extra cost and time involved in complying with the rule, advisors expect a shift in the products they recommend to clients: 28% of advisors surveyed say they will recommend variable annuities less often, since “maybe 96% of VAs are sold with a commission today,” Corra said, while 43% said they will recommend managed accounts more often.
In addition to the products they will use, three-quarters of the respondents said the rule will force them to re-evaluate the types of clients they serve, while 62% said they expect to “let go of or transition” some of their smaller clients from their practices.
Source: Fidelity Institutional
The online, blind survey (Fidelity was not divulged as the sponsor) was conducted in January among 485 advisors from the insurance, bank, wirehouse, independent broker-dealer and RIA channels.
It found that 80% of those surveyed were aware of the rule, that 73% believed it would have a negative impact on their practice and that overall they expected fewer investors, especially smaller ones, would receive retirement advice. RIAs see the rule as a business challenge, too: 50% of those surveyed said they expected to spend more time on complying with the rule and that their overall cost of doing business would increase. Corra said the findings and Fidelity’s own experience serving its advisor clients shows that “this is a topic where advisors are looking for more information.”
However, 53% of those surveyed said they were waiting “to take any action” on responding to the rule, so Corra says “there’s an opportunity now for advisors to familiarize themselves on the rule and how to adapt” their business models.
“At a minimum,” Corra said, advisors should expect to have “a conversation with clients” and increased recordkeeping costs. While it’s possible, he said, that DOL “may delay implementation for some of the more onerous requirements” of the rule, advisors now should “find out how much of my business is in ERISA plans” and how much of their revenue “comes from commissions.”
