|
 Some advisers are even job hunting, worried that the rule's
impending introduction could slash their compensation.
The Department of Labor (DOL) is expected to publish the so-called
fiduciary standard in the next few weeks. It requires wealth
managers to put the interests of retirement savers ahead of their
own.
Supporters of the new rule, such as consumer groups and retiree
advocates, say it will promote transparency and protect investors
from being sold unnecessary financial products that increase
commissions for brokers and create conflicts of interest. The wealth
management industry has opposed the proposal for years, arguing it
will drive up costs, curb commissions and ultimately hurt customers
because firms could abandon clients with smaller, less lucrative
accounts.
But after five years of fighting, the industry has accepted that the
end is in sight.
"We're working down two paths-advocacy to keep fixing the rule as
much as we can and helping members comply," said Scott Puritz,
managing director at Rebalance IRA, a wealth management firm that
offers low-cost IRA portfolio management.
"If firms are paying attention, they've set up internal DOL task
forces that are inventorying clients and preparing for the rule
already."
The Labor Department first proposed a new rule in 2010 but withdrew
it in 2011 after wide criticism from industry officials and
lawmakers.
A modified version was presented in 2015 with the goal of protecting
retirees from buying unnecessary products that line brokers' pockets
with fees and commissions.
"We have been committed to making changes and improvements based on
public comment and feedback, but cannot say to what extent the final
rule will differ from the proposal," a Labor Department spokesperson
told Reuters.
The agency reviewed comment letters and live testimony from industry
officials in support of and against the rule. In January, the
revised proposal was sent to the White House's Office of Management
and Budget.
Ahead of the rule's introduction, some firms are trying to a avoid
losing accounts by cutting fees and reducing the minimum balance
that clients need to have.
While some opponents have said the rule will force them to abandon
clients with small accounts, others are opting to adjust their
account offerings and include lower-cost, fee-based accounts.
St. Louis-based firm Edward Jones is piloting low-cost accounts and
charging an annual fee for clients with a minimum of $5,000.
Normally, customers have to have $50,000 in a fee-based account.
LPL Financial Holdings said this week it would allow clients to
maintain less money in their brokerage accounts and cut fees in
preparation for the rule.
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STRAW THAT BREAKS THE CAMEL'S BACK
Small wealth management firms are expected to take the biggest hit
after the rule goes into effect because they have fewer resources to
pay for extra paperwork, training and new technology needed to
comply.
As firms redirect resources to ensure they are compliant, some
advisers worried about lower commissions and compensation have begun
to ask recruiters about new opportunities.
"The rule isn't the sole reason people are ready to move, but in
every conversation we have, it is discussed because advisers will be
impacted," said Louis Diamond, vice president of Diamond
Consultants, a New Jersey-based recruiting firm.
"For advisers who are already unhappy, the rule could be the straw
that breaks the camel's back."
While traditional financial advisers have fought the rule, automated
or "robo" and other digital advisers have largely spoken in support
of it, arguing that digital platforms are more transparent,
affordable and lacking in conflicts of interest.
Traditional firms are developing robo advisers and for less well-off
clients, robo-advice could be more affordable.
"People will go to robo-advisers when broker-dealers stop taking on
smaller accounts," said Bao Nguyen, director of risk advisory
services at the Kaufman Rossin Group, a Miami-based accounting firm.
As proposed last year, the rule gave firms eight months to become
compliant, a time frame both supporters and opponents agreed was too
short.
"We proposed an 18-month time-frame," said David Blass, general
council for the Investment Company Institute. "That’s the minimum
for what it takes to change disclosure process, change compensation
practices and train employees."
(Reporting by Tariro Mzezewa; editing by Carmel Crimmins and David
Gregorio)
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