Investment Industry Roles to Change from Dodd-Frank

Financial Research Corporation (FRC) foresees significant changes in the roles, responsibilities, and services provided by brokers, advisers, asset managers, and others in the investment industry as a result of the Dodd-Frank Act.

A research report released by FRC, Reshaping the Financial Services Industry: Operating Under Dodd-Frank, concludes that brokers and asset managers who quickly and clearly understand the implications of rulemaking undertaken by the Securities and Exchange Commission (SEC) will have a better opportunity for growing market share and profitability than those who do not.

The report discusses how the industry is undergoing a transformation. An SEC study published in January, Study on Investment Advisors and Brokers, established for the first time that brokers are required to acknowledge fiduciary status and affirm that they are acting in the best interests of the retail consumer. “Going forward, brokers will be operating under a more stringent fiduciary standard of care. Rather than advice being incidental to trade execution, trade execution will be incidental to advice,” commented Bob Hedges, FRC’s Chairman.   

FRC identified many areas in which competitors in the investment services value chain will need to modify their business models, organizational processes, and product development and marketing practices to make advice and fiduciary standing safe, scalable, and easy to execute.   

Stephen Winks, author of the report, commented on the change in the revised role of the broker, and how the entities that support the function of the broker, will be impacted: “Brokers, in their new role as adviser, will be addressing investment and administrative values, such as risk, return and cost structure, on behalf of the customer, and not just selling investment products. That’s not required today. This has industry-wide implications.”   


The FRC report outlines technology-based information tools that still need to be developed, capabilities for managing an ever-expanding number of investment portfolios that will be required, administrative policies for advisors to be created, and practice management processes necessary for firms to profitably operate under the new rules.

"In parallel with the changing role of the broker, asset managers have the opportunity to provide solutions that go beyond packaged products that have been designed for today's commissioned sales environment," said Winks.

The report also describes the likely impacts on investment fund types and programs, including mutual funds, exchange-traded funds (ETFs), and managed accounts resulting from the imposition the new fiduciary standard. "We see ETFs as being particularly suited to the new environment because of their lower cost dynamics and greater portfolio construction flexibility," concluded Winks.   

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