A new study has found that the Department of Labor’s proposed fiduciary rule would cost firms $2.7 billion in the first year, which is 11 times higher than the DOL’s estimate of ongoing costs.
Last week, the Financial Services Institute (FSI) released a study conducted with Oxford Economics analyzing the potential impact of the DOL’s recently proposed Retirement Security Rule.
“The study confirms our concerns about the DOL’s proposed Retirement Security Rule and its negative impact on the accessibility of financial advice for Main Street Americans as they prepare for retirement.”
FSI President and CEO Dale Brown
After collecting relevant data from 15 FSI independent financial services member firms representing over 26,000 financial advisors with a total revenue of $14.5 billion and conducting research, the study determined that the DOL’s proposed rule would result in significant costs, impose undue burdens, and adversely affect Main Street American investors’ ability to access professional financial advice, products, and services.
“The study confirms our concerns about the DOL’s proposed Retirement Security Rule and its negative impact on the accessibility of financial advice for Main Street Americans as they prepare for retirement,” said FSI President and CEO Dale Brown. “If approved, the rule would impose unnecessary and expensive requirements on our members, further restricting Main Street American investors’ access to professional financial advice, products, and services.”
The proposed rule would impose unnecessary and expensive requirements on top of the existing requirements of current regulations like the SEC’s Reg BI and DOL’s PTE 2020-02, Brown added. “Given the findings of this study along with the concerns outlined in our recent comment letter, we urge the Department to withdraw the proposal.”
All survey respondents answered questions about upfront costs they would incur in preparing for the rule, and about ongoing costs they would incur on an annual basis, including in the first year. The added costs are related to upgrading software, external legal and consulting costs, and staff time.
“Based on the survey responses, we estimate that the upfront cost for the proposed 2023 Fiduciary rule will be approximately $238 million, over six times the DOL’s estimate of upfront costs ($37 million). Our estimate of the ongoing annual cost of the rules, $2.5 billion, is almost 11 times the DOL’s estimate ($216 million),” states the report’s Executive Summary.
In addition to electronic disclosures, FSI members expect advisors to have to print approximately 120 million pieces of paper annually to comply with the proposal.
In its analysis, the Oxford Economics report notes that the DOL relied solely on data collected before Reg BI and PTE 2020-02 went into effect, and claims the DOL’s regulatory impact analysis too lightly dismisses the proposal’s impacts on small investors.
The DOL claims there will be alternative options for small investors, but the report said it fails to mention that those options have limitations in terms of costs, conflicts, personalization, product shelf, etc.
Click here to download the full study.
This isn’t the first time the Financial Services Institute, an advocacy organization for independent broker-dealers, has undertaken a study of a proposed fiduciary rule’s estimated cost.
Back in 2015, a similar report issued in the wake of the DOL’s previous proposed fiduciary rule estimated it would have cost the independent financial services industry and investors nearly $3.9 billion in total startup costs to implement, which it said was nearly 20 times DOL’s preferred cost estimate. The organization added that the amount did not take into account the cost of investors’ lost access to advice or the ongoing costs of maintaining compliance with the rule.
SEE ALSO:
• Congress Voicing Concerns with DOL Fiduciary Rule Proposal
• Fiduciary Rule Comment Letters Flood in to DOL as Deadline Passes
• DOL Fiduciary Rule Released; Industry Reaction Pours In