The market for financial advice is experiencing “dramatic change” due to the Department of Labor conflict of interest rule, historically low yields on investments and the emergence of digital or “robo” advisors, according to new research.
Cerulli Associates unveils this finding in a new report, “U.S. Advisor Portfolio Construction 2016: Responding to fee pressure, regulations and passive investing.” The study examines trends in portfolio construction, detailing how financial advisors assemble and manage portfolios in light of client expectations and regulatory demands.
The report observes that the DOL’s conflict of interest (or fiduciary) rule has prompted advisors to give higher priority to reducing portfolio risk than to generating superior returns on investment. The rule will also restrict advisors’ latitude in the construction of client portfolios.
“Advisors highly value the flexibility found in rep-as-portfolio-manager (RPM) platforms, but the DOL rule will force broker/dealers to limit their firms’ risk profiles,” the report states. “And, as a result, they will seek to limit the discretion they allow advisors to take over client accounts.
“Distributors will seek to move advisors into home-office-created portfolios or RPM platforms that have strict guardrails,” the report adds. “Consequently, there will be a tug of war between advisors who want to maintain their autonomy and sponsors that want to lower their firm’s risk profile.”