Financial Services Institute: DOL Fiduciary Rule to Cost $3.9 billion

WASHINGTON, D.C. – Today, the Financial Services Institute (FSI) released its study, “Economic Consequences of the U.S. Department of Labor’s Proposed New Fiduciary Standard.”  The study was conducted with Oxford Economics and focuses on the economic impact of the Department of Labor’s (DOL) proposed fiduciary rule for retirement advice on the independent financial services industry and investors who rely on independent advice.

The study estimates the DOL’s proposed rule will cost the independent financial services industry and investors nearly $3.9 billion in total startup costs to implement the rule – nearly 20 times DOL’s preferred cost estimate. This amount does not take into account the cost of investors’ lost access to advice or the ongoing costs of maintaining compliance with the rule.

The evidence presented in the study also suggests that if the rule is implemented, only high net-worth investors will be able to access and afford professional retirement investment advice.

“This study shows that the DOL’s proposed fiduciary rule would be costly and burdensome to both the independent financial services industry and the investors that rely on the critical advice they receive,” said FSI President & CEO Dale Brown. “It also illustrates the unintended consequences the rule will have on hard-working Americans trying to save for retirement, particularly low and moderate-income investors who need advice the most.”

Other findings of the study:

• DOL has dramatically underestimated the compliance cost of the new rule and how difficult it will be for small firms to survive if it is implemented.
• The proposed rule will result in estimated startup costs ranging from $1.1 million to $16.3 million per firm, depending on firm size.
• BDs and investment advisers would be forced to either substantially change their current business models or navigate the challenging demands of a new “Best Interest Contract Exemption” (BICE).
• The rule will result in less access to advice from financial advisors for small and medium-sized investors. One unintended consequence may be that it will become harder for minority investors with small asset holdings to seek advice from financial advisors.
• The proposed rule will result in industry consolidation likely to force small broker-dealers out of business.
• An expanded potential for systemic risk in the retirement savings market as savers are increasingly pushed into the same set of standardized “low-cost” assets.