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September 18, 2016 at 02:08 PM
A survey by the National Association of Insurance and Financial Advisors of its members finds that many advisors believe the Department of Labor’s fiduciary rule affecting retirement products and services will damage their ability to serve their clients, particularly those who are lower- or middle-income clients.
According to the survey of 1,167 NAIFA members, more than 62 percent say the DOL rule will probably force them to stop serving some or all of their clients. An additional 11 percent say they are unsure whether the rule would force them to stop serving clients.
Related: Not ready to become a DOL-compliant FI? Go partner with one
The DOL rule is likely to spark an exodus from the market: 16 percent of survey respondents say they will no longer provide retirement plan products or services to individual or business clients.
Lower- and middle-income clients could be particularly hard hit by implementation of the rule. Nearly a quarter of the advisors (24.2 percent) say they will lose all of their lower- and middle-income clients, while 41.3 percent say they will lose some. An additional 17 percent say that they do not yet know how the rule will affect their ability to serve clients who are not wealthy.
“The DOL rule has a strong potential to be a very bad deal for consumers who are not wealthy, but who are trying to do the right thing for their families by preparing for the future,” says NAIFA President-elect Paul Dougherty. “Lower- and middle-income workers want and would benefit from the help of a professional advisor as they prepare for retirement, but they may find that help hard to come by under the DOL rule.”
Compliance costs to have ‘negative effect’ on business
Advisors express a strong belief that complying with the rule will increase their costs of doing business. Nearly half (49.5 percent) expect their compliance costs to go up significantly. And an additional 29 percent expect costs to rise modestly, with 11 percent saying they are not sure.
Nearly all of the advisors foresee the rule having an impact on their ability to serve clients. The effects will be entirely negative, according to 56.7 percent of respondents, while 27.3 percent say the effects would be mixed. Only 3 percent said the effects are likely to be entirely positive.
“NAIFA members are dedicated to serving lower- and middle-income clients,” Dougherty adds. “But much of this is out of the advisors’ hands. Several financial institutions have already said they will no longer provide retirement investment products because of DOL rule’s compliance costs. Others may follow suit or restrict their business to wealthier clients.”
Advisors are working to understand and prepare to implement the rule, with the vast majority indicating that they have at least some understanding of the impact the rule will have on their business. Only 3.8 percent say they have “no understanding,” and 12 percent say they have “complete understanding.”
