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Regulation and Compliance > Federal Regulation > DOL

Broker-dealers on DOL fiduciary rule: Expect advisors to walk

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More than half of broker-dealers (54 percent) believe some of their advisors will retire rather than sell under new business rules to comply with the Department of Labor’s fiduciary rule, according to a LIMRA Secure Retirement study.

“Because the rule increases advisors’ liability, B-Ds also expect their advisors to stop providing advice to clients with lower IRA account balances,” said Kathy Krozel, research director, LIMRA Distribution Research.  “At a time when more Americans need access to advice, it appears that the new DOL rule may actually reduce access for middle income consumers.”

Related: To the rescue: Ex-coast guard pilot pitches DOL rule revamp

The Institute finds that most B-D firms (8 in 10) plan to employ both the PT 84-24 or BIC exemptions allowed under the new rule, while nearly three quarters will use fee leveling/fee offset. Firms said they will employ multiple strategies to ensure compliance (see chart on the next page).

Two-thirds of broker-dealer firms believe the increased cost of compliance will be passed on to the consumer. And 9 in 10 B-Ds agree that the rule will increase consolidation in the industry, most likely affecting smaller firms. 

“Historically our research has shown that larger companies benefit from the economies of scale when there is significant change in the market,” noted Krozel. “Smaller firms may be unable to afford the high cost of implementing the changes needed to comply with the rule. And some may opt to merge with their larger counterparts.”

When asked about the four largest impacts of the DOL fiduciary rule to their business, 75 percent of B-Ds believe the risk of litigation would be exacerbated by the DOL fiduciary rule.  Seven in ten think the rule will force changes to advisor compensation practices and structures.  The cost of compliance — both in changing business practices and reporting — round out the last two impacts cited by B-Ds.

“The feedback we received from the B-Ds is aligned with responses from carriers and advisors,” Krozel observed. “This is a transformational event in the financial services market.  Intentional or not, the DOL fiduciary rule will change the landscape of the retirement market for decades.”

Related: The DOL fiduciary rule, duties to consumers, and the Best Interest Contract Exemption

More than 7 in 10 broker-dealers expect to use the DOL rule’s best interest contract exemption (BICE) for certain retail products, such as variable annuities. (Click on chart to enlarge.)



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