After nearly six years of waiting, the broker-dealer industry is getting its first glance of the finalized fiduciary rule, released officially Wednesday by the Department of Labor.

Labor Secretary Thomas Perez, who spoke with reporters Tuesday, says the department has “streamlined” and clarified its conflict of interest rule — including the controversial Best Interest Contract Exemption (BICE).

Plus, the DOL has pushed out the initial compliance timeline for the fiduciary rule to one year from the original eight months and “phased in the implementation [of the entire BICE requirements] so firms will have until Jan. 1, 2018” to be fully compliant.

(Check out complete coverage of the DOL fiduciary rule on ThinkAdvisor.)

But while Perez insists that regulators “listened,” “learned” and “adjusted,” a survey of leaders in the broker-dealer industry by Investment Advisor magazine finds a high level of concern with the new rule and its impact on the business.

Results collected from the presidents of 27 independent broker-dealers over the past few weeks – before the final rule was released – reflect their varied views on the regulations and their lingering concerns on how it will impact their firms’ operations as well as their registered representatives.

These leaders support some 30,700 registered reps, about 1,600 of whom have their own RIA; about 17,400 use a corporate RIA to do business. This group of broker-dealers expects to have combined annual revenues in 2016 of $2.5 billion. 

(More presidents are expected to weigh in on the matter in the next few weeks, and the poll results will be updated by June 1.)

Read on to see what IBD presidents think about the consequences of the new regulatory framework, which includes seven documents and 1,023 pages of information. (See the Federal Register website and look for new Employee Benefits Security Administration rules.)

Source: Broker-Dealer Presidents' Poll

The majority of broker-dealer presidents, 52%, see the new fiduciary standard as leading to “significant change” in the industry. Specifically, they agree that it will bring more consolidation – meaning that some IBDs will be forced to merge, sell or close operations.

A huge proportion of IBD heads, 48%, explain that the rule will sharply raise compliance and other costs, though these leaders expect “most IBDs” to survive.

Industry observers, like recruiter Jon Henschen, believe the rule will contribute the ongoing decline in the number of broker-dealers.

The field stood at 4,578 in 2010, he points out, but was down to 4,034. In the fourth quarter of 2015, 16 new firms appeared and 53 left the industry, 32 of which were equity trading firms.

“As discouraging as these statistics look, this could very well be the tip of the iceberg,” he explained recently in a ThinkAdvisor blog.

“The DOL fiduciary standard will also lower revenues for broker-dealers due to fewer product choices, lower commissions and higher rates of litigation.”

Source: Investment Advisor Presidents' Poll

Nearly all independent broker-dealers, 93%, responding to the 2016 Investment Advisor Presidents’ Poll say that the DOL fiduciary rule is the most challenging issue they face over the next 18 months or so.

A minority, 7%, indicate that keeping and recruiting registered reps is their biggest focus.

This stands in marked contrast to the poll’s 2015 results, when just 32% of IBD presidents said the DOL rule was the most challenging issue and a whopping 45% were focusing on keeping and recruiting reps.

With the just-issued rules contained in 1,023 pages spread out over seven documents, the high level of concern appears warranted.

Still some firms are upbeat on their ability to meet the challenge.

“While our review is still in progress, with the rule in hand, we now have greater clarity and can begin quickly implementing solutions that will help investors retain access to the objective financial guidance they need,” said LPL Financial in a statement on Wednesday.

“As a result of LPL’s preparation over the past year, the firm has already announced several changes to position LPL and its advisors for growth by offering choice and flexibility to serve a range of investors seeking both ongoing and occasional advice,” the IBD explained.

On March 15, LPL Financial announced plans to cut prices that advisors pay for its managed platforms, drop account minimums on some model portfolios and roll out a fund-only brokerage IRA option to get its affiliated advisors ready for the rule.

Source: Investment Advisor Presidents' Poll

Looking longer term, broker-dealers say they believe the new DOL rule will continue to be a challenge.

Nearly two-thirds of IBD presidents, 63%, say the fiduciary rule is the most challenging issue they face over the next several years and beyond.

Close to one-fifth, 18%, of these leaders state that increased compliance costs are their top concern. A related challenge, updating technology, is on the minds of 15% of these IBD executives.

Roger Ochs, CEO of HD Vest Financial Services, says that the firm he leads – which has some 4,500 affiliated independent reps – is “in the process of further review” of the rule.

However, the new fiduciary standard “still potentially calls into question the industry’s ability to support small IRA accounts on a commission basis, which is currently the most cost effective means of doing so,” he explains in a statement.

“We’re actively exploring a range of options for our advisors to accommodate this segment of retail investors …,” Ochs added. “Many of the affluent and high-net-worth clients our advisors support today started out as small IRA investors that were guided, step by step, until they were able to reach their retirement dreams.”

Source: Investment Advisor Presidents' Poll

Given their high level of concern with the fiduciary standard, most IBDs – 70% – say they are dedicating “significant” financial and human resources to the issue.

More than a quarter, 24%, have been “actively monitoring it,” though they have not made specific plans on addressing it yet. A smaller number, just 4%, have adopted the wait-and-see approach.

“Cetera has been aware of the broad brushstrokes of the DOL rule for some time now, and we have been actively positioning our advisors to transition this situation from an obstacle to an opportunity,” said Adam Antoniades, president of the Cetera Financial Group, in a statement.

According to Antoniades, the group – which includes 10 IBDs with some 9,100 reps – has been using resources “to develop multiple new tools and platforms to prepare our advisors for how to best operate their businesses and enjoy continued success in this new regulatory environment.”

Securities America says its DOL task force and outside counsel “are reviewing” the final rule. “Our solutions will maintain the choice and flexibility in business and compensation models that are a cornerstone of independence while ensuring advisors can continue to serve their clients’ best interests,” the IBD explained in a statement.

Source: Investment Advisor Presidents' Poll

When asked about the main impact of the DOL’s new fiduciary rule on registered reps, more than one-third (or 37%) of IBD presidents say they will need to take more steps toward becoming a fee-based broker-dealer.

This opinion is born out in industry statistics, which now show that more of advisors’ total revenues are coming from fees than commissions, according to CLS Investments.

According to the group’s recent report, Making the Switch: The Benefits of Moving to a Fee-based Model, advisors now derive 46% of their total revenues from fees vs. 45% in commissions.

The paper says that in the coming years advisors are expected to derive more than 55% of their revenues from fees.

The paper points to data from Cerulli Associates that finds the amount of assets in fee-based accounts nearly tripled over the last decade – from $987 billion in 2003 to $2.7 trillion in 2013.

“Regulators, such as the Department of Labor, who oversee retirement assets, are pushing an agenda that may seriously impact the viability of  traditional commissions in retirement plans, including IRA accounts,” CLS’ paper states. “When taken to the extreme, regulators may make commissions obsolete, similar to what has happened in the U.K. and Australia, where commissions have been outright banned.”

— Check out The ABCs of the DOL Fiduciary Rule on ThinkAdvisor.