Advisors: Little Change to Client Fees, Product Choice

Advisors report little disruption to clients amid the transition to the full Department of Labor fiduciary rules, a new survey has found.

The survey’s findings also stand in contrast to warnings a year ago by some advisor groups who cautioned that the rule would entail higher costs and restrict access to retirement products.

“With all the hype around the world coming to an end, some (clients) were affected but for the most part people seem to be OK,” said Denise Valentine, senior analyst with Aite Group in Boston and lead author of the report on advisor sentiment.

To be sure, many internal processes at wirehouses and broker-dealers have gone through a period of upheaval over the past 15 months since the DOL’s fiduciary rule was unveiled in April 2016.

Nor have the changes come cheap: asset managers, insurers and distributors have spent hundreds of millions of dollars to meet the rule’s requirements and ensure a smooth transition.

The DOL rules began taking effect June 9, with phase two set for Jan. 1, 2018. But experts expect that deadline to be delayed. In the meantime, President Donald Trump ordered the DOL to review the fiduciary rule to determine whether it would make it harder for investors to gain access to retirement advice.

Large Percentages of Advisors Satisfied

For retail clients the inconvenience appears to have barely registered.

Advisors believe that their respective employers have done a good job with the heavy lifting necessary to retool systems and procedures to meet the requirements for dispensing advice and recommending products into retirement accounts.

More than three-quarters – 76 percent – of the 152 respondents felt their firms had done a good job or better of protecting clients from fee changes, Aite Group’s seventh annual financial advisor survey found.

Similar margins of satisfaction were reported around product and pricing mix.

Of the 152 advisors surveyed, 77 percent said companies had done well or extremely well calibrating the product/pricing mix.

“I wasn’t expecting such positivism,” Valentine said.

The survey was conducted in April and May, before the first phase of the DOL rule took effect, and distributed to 369 U.S. advisors.

Results were based on the response of 152 advisors who service retail retirement accounts and are familiar with the DOL rule.

Fees and Product Choices

Minor disruptions to agents and distributors were reported in the immediate aftermath of the June 9 implementation date.

Sales of annuity products were still “flowing in” from agents selling annuities into retirement plans, said Ray Wasilewski, chief operating officer, Life Companies, for FBL Financial Group, a top seller of insurance in the Midwest.

One of the company’s annuity products was suspended as the agent commission was too low and it made no sense to raise the commission on it, he said.

Though more changes are expected if the rule is implemented as written on Jan. 1, for now any changes appear marginally disruptive.

A majority – 51 percent – of advisors surveyed said they don’t expect any change in fees charged to their retirement account clients if the current version of the rule is adopted, Aite Group reports.

Another 28 percent expect to see a moderate fee increase, but 16 percent expect a moderate fee decrease. Only 1 percent of respondents expected a significant increase in fees and 4 percent said they expected a significant decrease in fees.

Overall, the survey found little decrease in product choices.

Six in 10 advisors reported no change in product choices for retirement account clients, while 22 percent said product choices had increased and 18 percent said product choices had decreased.

Were alarmists overreacting when they jammed the DOL’s inbox a year ago with public comments against the rule?

Looking back, both sides had to make their most aggressive case for and against the rule and as with most negotiations the result seems to have settled on a middle ground.

“The outcome has come out in a fairly decent place,” Valentine said.

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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