Here’s another item for “pro” column. The upcoming (and unavoidable) proposed 401(k) fiduciary rule from the Department of Labor will spur product and platform innovation in the RIA space.
“The requirements of the DOL’s proposed ‘Conflict of Interest Rule’ will ultimately lead to evolution of products and platforms,” Bing Waldert, managing director at Cerulli Associates, said upon release of the company’s research on the subject. “Large broker/dealers will use developing technology to serve smaller accounts on a flat-fee basis. Insurance companies will be forced to lower variable annuity expenses and commissions to be in line with other financial products.”
“The true impact of the DOL’s proposed ‘Conflict of Interest Rule’ may not be immediately felt, but will lead to a period of product and platform innovation at B/Ds and manufacturers,” Waldert explained. “The primary concern of the DOL’s proposal is to expand the definition of fiduciary to cover more instances of providing advice. This expansion, in turn, is designed to protect consumers from sales practices that may be tainted by a conflict of interest.”
He added that Cerulli expects there will be unexpected changes to the retirement and wealth management industries, and, to a degree, this cultural evolution is what the proposed rule is hoping to effect.
“The DOL’s April 2015 proposal creates a new type of prohibited transaction exemption (PTE), referred to as the Best Interest Contract Exemption (BICE), which is a contract that the investment advice provider must present to a potential client,” Waldert concluded. “Specifically, the financial institution must disclose any variable compensation that the advisor receives for the advice and resultant product sale, and comparative examples of compensation they would have received for other products.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
