Little surprise, 401(k) advisors are split over the fiduciary rule—some like it, some don’t.
Pioneer Investments polled attendees of a web seminar featuring fiduciary powerhouses fi360 and Drinker Biddle & Reath. When asked about the impact of the new rule, 51 percent of advisors polled said that the regulation would help their business by levelling the playing field on retirement advice and eliminating competition from those not willing to accept fiduciary responsibility. Only 27 percent felt that it would hurt their business and 15 percent indicated that it would be a non-event.
“The key takeaways are the majority of advisors now feel that managing their practice in line with the new regulation will help their business and there is still a significant percentage of advisors who remain concerned that it could hurt their business,” said Mark Spina, Executive Vice President and Head of U.S. Intermediary Distribution at Pioneer Investments. “This reinforces our belief that the importance of providing timely, educational information to financial advisors has never been greater than in today’s regulatory environment.”
Forty-seven percent of advisors polled believe that the new rule will hurt investors by raising costs and limiting the availability of advice for small and middle-income investors. Thirty-seven percent believe that it will help investors by placing their best interest first with fewer conflicts of interest to drive better outcomes, and 10 percent felt that it will be a non-event for investors.
“I certainly agree that there is going to be a significant transition period, and that always entails some level of cost,” said Blaine Aikin, Executive Chairman at fi360, in response to the poll results. “But if you look longer term the benefits definitely are there for the investors, and I expect will ultimately pay off, so it makes sense that the industry is divided on this.”
When asked how the fiduciary proposal will impact their IRA rollover business, 49 percent of advisors indicated that it will have little to no impact and 23 percent expect a moderate to high negative impact. Only 12 percent indicated that there would be a moderate to high positive impact on their IRA rollover business and 16 percent were unsure.
“The impact on IRA rollover businesses will vary by type of advisor,” explains Fred Reish, Partner at Drinker Biddle & Reath, LLP. “For advisors working as registered representatives of broker-dealers the impact will be pretty high, whereas smaller firms may be able to adapt to the rule more easily.”
Responses from advisors varied when asked if they will need to rely on the Best Interest Contract Exemption (BICE). Sixty-one percent of advisors polled said that they use a level compensation model and will not need to rely on BICE routinely, while 17 percent use a non-level compensation model and will need to rely on BICE routinely. Twenty percent indicated that they will change from a non-level to a level compensation model to avoid BICE, while only 2 percent will indicated that they will change from a level compensation model to a non-level compensation model given BICE.
In terms of what broker-dealers will do in response to the regulation, 36 percent of advisors expect that their broker-dealer will offer more level compensation products to avoid BICE. Thirteen percent expect that they will rely upon BICE to continue providing products with compensation conflicts, and 8 percent expect that they will integrate a digital robo platform to support small or potentially orphaned accounts. Thirty-percent of advisors were not sure.