The Department of Labor’s proposed fiduciary rule will affect $3 trillion of client assets and $19 billion of revenue at full-service wealth management firms, Morningstar says.
“We asses that the U.S. Department of Labor’s proposed conflict-of-interest, or
fiduciary standard, rule could drastically alter the profits and business
models of investment product manufacturers like BlackRock and wealth management
firms like Morgan Stanley that serve retirement accounts,” Morningstar says.
While government and financial industry groups have estimated the rule could cost as much as $1.1 billion a year, Morningstar says it will cost a minimum of $2.4 billion.
Furthermore, Morningstar says, “The rule’s financial repercussions extend far beyond wealth management firms. Full-service wealth managers may convert commission-based IRAs to fee-based IRAs to avoid the additional compliance costs of the rule.” Fee-based accounts generate up to 60% more revenue than commission-based accounts, which could add $13 billion of revenue to the industry each year.
Robo-advisers stand to benefit from the rule, particularly among low-balance IRA assets. Additionally, Morningstar estimates that more than $1 trillion of assets could flow into passive investment products and that discount brokerages, which frequently specialize in passive investment products, will also profit from the rule.
Morningstar’s comments on the rule can be viewed here.