Survey Says: DOL Rule Will Shrink Advisor Force

The Department of Labor fiduciary rule is expected to reduce the financial advisor population, with 10 percent of advisors planning to leave or retire from the business, according to new research.

Another 18 percent reconsidering their careers, the Fidelity Institutional survey revealed.

While many advisors appear headed for the exits, plenty of advisors are here to stay. Twenty-nine percent of advisors see the fiduciary rule as having a positive impact on their business, the survey found, a sign that advisors may be moderating their positions with regard to the rule.

“We are seeing shifts in perspectives as well as shifts in plans as firms begin to chart their long-term strategies for growth in the post-DOL rule landscape,” said Tom Corra, chief operating officer of Fidelity Clearing & Custody Solutions, in a news release.

The online survey asked 485 advisors about the rule in January, three months before DOL regulators published the rule’s final version, and surveyed 459 advisors in August, four months after the final rule was issued.

Participants included advisors who manage or advise client assets either individually or as a team, and work primarily with individual investors.

Advisor firm types included a mix of banks, independent broker-dealers, insurance companies, regional broker-dealers, registered investment advisors, and wirehouses, with findings weighted to reflect industry composition, Fidelity said.

Positive Impact of Rule Rises

The August survey found that 25 percent of advisors across advisor segments said they expect to see a positive impact on their ability to acquire and retain clients, double the number of advisors who felt that way in the January survey.

“The time has come for advisors to decide whether they go all-in and work with the regulations as they come to light next April,” said Philip E. Harriman, co-founder of Lebel & Harriman, a financial advisory in Falmouth, Maine.

Advisors are bracing for big changes to their business models once the rule goes into effect beginning April 10, 2017. Fidelity’s survey sample, small as it is, hints at the coming bifurcation among the estimated 305,000 independent advisors working in the U.S. today.

Some advisors will leave the industry, but many among those who remain may well find their businesses growing if they follow the new regulations and put the necessary best-interest processes into place, analysts say.

Many consumers will be “set adrift” by advisors who hand off their accounts to other advisors who are unprepared for the changes, Harriman said. That means new opportunities for advisors who are prepared to play by the new rules.

“That creates opportunity as people have to seek out advisors with skill sets in this area and it will weed out advisors who don’t want dedicate themselves to this level of scrutiny,” he said.

In the August survey, 28 percent of registered investment advisors (RIA) said the rule would have a positive impact on their business, a 6 percent increase from the January survey.

Among broker-dealers, 24 percent of respondents in August said the rule would have a positive impact on their business, a 15 percent increase from January.

And among wirehouse advisors, 19 percent in the August poll were upbeat about the rule, up 8 percent.

Sifting Through Accounts

Half of advisors have started to determine which of their accounts may be appropriate for a level-fee compensation model or a prohibited transaction exemption, like the Best Interest Contract Exemption (BICE), Fidelity’s research found.

The BICE allows advisors to sell commission-based products if advisors agree to the terms, which include disclosures and a signed contract.

Fidelity’s survey found that advisors expect to manage 30 percent of their retirement assets through an exemption such as BICE.

Harriman, whose firm advises individual clients and employee retirement plans, has been working on the rule for months, if not years, and Lebel & Harriman associates are preparing to sit down with clients to explain the fee schedule.

If clients find fees are too high, then Lebel & Harriman is ready to offer clients options that include lower levels of service commensurate with lower fees, he said.

“You understand how much co-fiduciary support you want from a firm like ours and it will determine pricing,” Harriman said.

Advisors have even warmed to keeping smaller accounts, which are often less profitable and most likely to be dropped.

In August, 54 percent of advisors said they planned to “let go,” or transition smaller clients, a figure down 10 percent from January, Fidelity said.

Many industry watchers say smaller accounts will be funneled to Internet or self-directed investment platforms. Those platforms will often remain within the same advisory, brokerage or mutual fund company so assets remain “in-house,” even if not managed by an advisor.

Internet platforms, which charge lower fees but don’t offer the comprehensive approach of a full-service advisor model, are widely seen as a fit for younger and more tech-savvy retirement investors.

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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