With DOL Fiduciary Compliance Costs Mounting, Consumers Are Likely to Lose Out

Much remains unknown about how the Department of Labor’s fiduciary rule will impact the retirement planning market, but one thing seems clear: it will be costly.
The DOL, itself, estimated the cost to comply with the rule will be between $10 billion and $31.5 billion over ten years, with the most likely figure being $16.1 billion. The department expects $5 billion in first-year costs and $1.5 billion in annual costs after that.
Two companies have released figures on compliance costs stemming from the DOL rule. Principal Financial Group has estimated that it will face compliance costs of $1 million per month for the next year-and-a-half to two years and $5 million to $10 million per year after that. Ameriprise Financial stated that it already incurred $11 million in compliance costs over the first six months of 2016.
A recent study by the consulting firm A.T. Kearney finds that the rule will cost brokerages approximately $11 billion by 2020, with $4 billion of the loss falling on traditional broker/dealers, $3 billion on independent broker dealers and $3 billion on wirehouses. The A.T. Kearney study also projects a major disruption industry-wide over the next four years, with up to $2 trillion in investor assets being shifted.
Of course, financial institutions and broker/dealers will not be the only ones to feel the impacts of these cost increases. A recent survey of NAIFA members operating in the retirement space found that more than 78 percent think the DOL rule will increase their costs, with 64 percent of those saying the increase will be substantial.
Consumers are likely to bear the ultimate burden. More than 63 percent of the NAIFA members surveyed said the DOL rule will or probably will force them to stop serving some or all of their clients, with another 11 percent uncertain whether they will need to stop serving some clients. The survey indicated lower and middle-income clients will be hit hardest.
The A.T. Kearney study bears this out, projecting increased business for registered investment advisers, who tend to serve wealthier clients, as well as roboadvisors and self-directed accounts, which provide very minimal advice and services but are likely to benefit from an influx of lower net worth clients currently served by advisors.
“The DOL rule will have the most significant consequences for average investors who profit from their advisors’ guidance, but don’t have the high portfolio balances required by most RIAs,” said NAIFA President Paul Dougherty. “These are people who value the personal relationships they build with their advisors and customized strategies they and their advisors develop together. These are things roboadvisors simply cannot provide. I hate to see these hard-working people left out in the cold because of the cost increases and market disruptions this rule is sure to bring.”
  • Posted September 23, 2016 IN

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