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.

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.

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.