A major critic of the Department of Labor’s proposed fiduciary rule in its current form has undertaken a study of its estimated cost and, as expected, the results ain’t pretty.
Financial Services Institute (FSI), an advocacy organization for independent broker-dealers, estimates the DOL’s proposed rule will cost the independent financial services industry and investors nearly $3.9 billion in total startup costs to implement the rule. This is nearly 20 times DOL’s preferred cost estimate. The organization adds that this amount does not take into account the cost of investors’ lost access to advice or the ongoing costs of maintaining compliance with the rule.
The study, “Economic Consequences of the U.S. Department of Labor’s Proposed New Fiduciary Standard,” suggests that if the rule is implemented, only high net-worth investors will be able to access and afford professional retirement investment advice, FSI claims.
“This study shows that the DOL’s proposed fiduciary rule would be costly and burdensome to both the independent financial services industry and the investors that rely on the critical advice they receive,” said FSI President and CEO Dale Brown. “It also illustrates the unintended consequences the rule will have on hard-working Americans trying to save for retirement, particularly low and moderate-income investors who need advice the most.”
Other findings of the study:
- DOL has dramatically underestimated the compliance cost of the new rule and how difficult it will be for small firms to survive if it is implemented.
- The proposed rule will result in estimated startup costs ranging from $1.1 million to $16.3 million per firm, depending on firm size.
- BDs and investment advisers would be forced to either substantially change their current business models or navigate the challenging demands of a new “Best Interest Contract Exemption” (BICE).
- The rule will result in less access to advice from financial advisors for small and medium-sized investors. One unintended consequence may be that it will become harder for minority investors with small asset holdings to seek advice from financial advisors.
- The proposed rule will result in industry consolidation likely to force small broker-dealers out of business.
- An expanded potential for systemic risk in the retirement savings market as savers are increasingly pushed into the same set of standardized “low-cost” assets.
The full report can be found here.
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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.
What a one sided article. The FSI is largest lobbying firm in DC acting on behalf of broker dealers and their commissioned sales people – not the investing public. Steadfast advocacy for the client, through a Registered Investment Advisor and 3(38) Investment Manager – just like Contego Capital Advisors – is the only way to add true objectivity, transparency and efficiency to the marketplace. We already serve retirement plan sponsors and participants as fiduciaries in the best interest of the client across all account sizes. We – as do many other RIA’s – already meet and exceed the Fiduciary Standard that you and FSI bemoan here. We do because it is the right thing to do. Put the client’s interest first, act with prudence, avoid all conflicts of interest and fully disclose all pricing in English – that is the right way to do business, and it already exists. Caveat Emptor…
I appreciate your point of view, Paul, but the piece is one-sided because the report is one-sided, something we acknowledge in our opening sentence; “A major critic of the Department of Labor’s proposed fiduciary rule.” In the very next sentence, we describe FSI as “an advocacy organization for independent broker-dealers.” It’s not exactly something we buried. The article is meant to convey that a lobbying organization has released a report, that is all. We did not undertake to analyze the merits of their findings.