Compliance

SIFMA Sends DOL Study About Fiduciary Rule Effects

The study suggests advisers have pared back products and services for retirement investors, and compliance with the fiduciary rule will be costly.

By Rebecca Moore editors@strategic-i.com | August 10, 2017
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More than half (53%) of financial institutions reported limiting or eliminating access to advice in retirement brokerage accounts, impacting an estimated 10.2 million accounts and $900 billion in assets under management (AUM), according to a study of a cross-section of SIFMA members, commissioned by SIFMA and performed by Deloitte & Touche.

The 21 financial institutions that participated in the study represent 43% of U.S. financial advisers and 27% of the retirement savings assets in the market. The study results were presented to the Department of Labor (DOL) along with SIFMA’s comment letter responding to a request for information (RFI) from the DOL about its new fiduciary rule.

According to the study results, in order for investors to retain access to advice on retirement accounts from the study participants who eliminated or limited advised brokerage access, investors would have to move to a fee-based option. To accommodate clients leaving advised brokerage, 62% of study participants broadened access to advice through fee-based programs by lowering account minimums, launching new offerings, or both.

The study report notes that fee-based accounts are fiduciary accounts regulated by the U.S. Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940. While fee-based accounts offer a higher level of service than brokerage accounts and often include automatic rebalancing of accounts, comprehensive annual reviews, enhanced reporting to account holders, and access to third-party money managers, its fees are generally an “all-in” asset-based fee that is generally higher than the fees paid in an advised brokerage account (to compensate for the additional services). Out of the subset of study participants that provided their average advised brokerage and fee-based account fees, it was observed that annual fee-based account fees were 64 bps higher than advised brokerage fees, on average (110 bps versus 46 bps).

Sixty-three percent of study participants that limited or eliminated access to advised brokerage had retirement investors elect to move to a self-directed account. These investors lost access to personalized advice for any assets transitioned to the self-directed model.

Study participants indicated that many retirement investors moved into a self-directed brokerage account for one or several of the following reasons:

  • The retirement investor did not want to move to a fee-based account;
  • It was not in retirement investor’s best interest to move to a fee-based account;
  • The retirement investor did not meet the account minimums required for a fee-based account;
  • The retirement investor wished to maintain positions in certain asset classes which were not eligible for a fee-based account.

The study also found 19% of study participants limited or eliminated rollover advice for retirement investors, restricting advisers to an education-only capacity when discussing rollovers with retirement investors.

Nearly all (95%) study participants reduced access to or choice within the products offered to retirement investors regardless of the level of sophistication of the retirement investor. Products affected included, but were not limited to, mutual funds, annuities, structured products, fixed income, and private offerings. The study report says the limitation of products available to retirement investors potentially impacted 28.1 million accounts and $2.9 trillion in AUM of study participants.

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