In Practice June 24, 2009

Regulation on the Mind

Just six months ago, business growth concern was the number one business concern among registered investment advisers (RIAs)—but now regulation has taken center stage.
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The top business concerns of registered investment advisers (RIAs) are: regulatory changes on the horizon, a humbling economy, and profitability, according to a survey commissioned by TD AMERITRADE Institutional. Regulation seems to be a larger concern than when the survey was last conducted (see “Many RIAs Report Firm Growth“).

The majority of RIAs surveyed expect they will need to dedicate more of their time to managing any new regulatory requirements, which they say could reduce time with clients (see “Fees Are the Word“), according to a release of the survey results.

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The top five business concerns of RIAs over the next year are:

  • regulatory changes (34%)
  • macro-economic environment (31%)
  • profitability (27%)
  • managing risk, legal, and compliance issues (18%)
  • marketing (17%).

“Regulatory changes are clearly weighing on the minds of RIAs right now, reflecting a growing fear of the unknown,” said Brian Stimpfl, managing director of adviser advocacy and industry affairs at TD AMERITRADE Institutional, in a news release of the results. “While there is little consensus on the impact new regulatory rules or oversight might have on advisers, there is significant concern new regulations could put downward pressure on profitability and reduce time with clients.”

The current Administration is planning on making changes to the financial regulatory system (see “What’s Happening at the SEC“ and “SEC Functions Could be Divided under Obama Proposal“). Most RIAs said they would prefer to see regulating authority stay with the Securities and Exchange Commission (33%) or the states (22%), followed by an existing self-regulatory organization such as the Financial Industry Regulatory Authority (FINRA) (19%).

Fiduciary Standard

 

In addition to oversight reform, regulators are considering several changes to the fiduciary standard model, TD AMERITRADE noted. Two-thirds of RIAs surveyed would like to see the fiduciary standard applied to registered representatives, who are currently held to a suitability standard—meaning products they sell or recommend must be suitable for the investor’s goals and circumstances, according to the survey.

When asked which fiduciary model they would support, advisers said:

  • Apply a universal fiduciary standard where the current fiduciary requirements for RIAs would also apply to brokers (36%).
  • Adopt SIFMA’s proposed Principles of Fair Dealing that emphasizes fair treatment of investors by applying the same core standards of care whether the firm is a financial planner, investment adviser, a securities broker/dealer or another financial services provider (29%).
  • Maintain the current fiduciary standard for RIAs and the suitability standard for brokers (25%).

About half (49%) of the RIAs surveyed said they will wait to see what financial impact any new regulation requirements might have on their business, while almost as many plan to absorb any additional costs or pass some on to clients (44%). Less than 10% surveyed expect to pass on all or most of any cost to clients.

The survey was conducted by Maritz among 503 RIAs between May 14 and 22.

Data & Research June 23, 2009

Employers See Retirement Planning as Retention Tool

Research by the Center for Retirement Research at Boston College (CRR) suggests employers with a relatively large share of employees wanting to stay past the traditional retirement age are less likely to adopt an individualized retirement planning program.
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In its latest Issue Brief, CRR suggests employers primarily view individual retirement planning as a tool for retaining, not retiring, employees. The researchers contend that this suggests that staffing issues, not a disruption of the employer’s retirement process, underlies their interest in this initiative.

CRR’s research also suggests employers have been slow to recognize the personnel management implications of the shift away from traditional pension programs and are interested in retirement-related initiatives in order to attract and retain employees.

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CRR says “the presence of a significant ‘retirement challenge’—either a large number of unprepared employees or a large number of employees wanting to stay on the job well past the traditional retirement age—has no significant effect on the encouragement of retirement saving.”

Of four retirement-related initiatives suggested, employers said they were most likely to increase their encouragement of retirement saving. On the likelihood scale from one to 10, the median response was an eight and nearly 30% responded 10.

However, two characteristics, the employer’s expected rate of employment growth and the size of the employer—not the retirement challenge—have a statistically significant positive effect on the encouragement of retirement saving, according to the report. The strong association with expected employment growth indicates that employers see the encouragement of retirement saving as an “employee benefit” useful in attracting and retaining workers, the researchers contend.

Employers in the study are generally lukewarm about creating employment opportunities for even half the employees they expect will want to stay on the job two or more years past the traditional retirement age. According to the report, a need to attract and retain workers and the value employers see in older workers makes them more receptive to creating opportunities for workers to stay past their traditional retirement age.

Employers that expect rapid employment growth, and thus need to attract and retain more workers, and employers that have a relatively old workforce that could soon be depleted by retirements or that see older workers as making a positive contribution to the organization’s knowledge base are more likely to create such opportunities. Not surprisingly, employers are less likely to do so if they view older workers as costly or if the older employees in question are rank-and-file as opposed to white-collar workers.

Having a relatively large number of employees wanting to stay on has no significant effect on the likelihood an employer would create opportunities for them. “Neither their employees’ need to work longer (the employees’ retirement challenge) nor potential disruptions to the retirement process (the employer’s retirement challenge) had any significant effect,” the report says.

 

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