RIAs Say DOL Rule Will Hike Compliance Costs

Registered investment advisors (RIAs) expect the Department of Labor’s new fiduciary rules to lead to higher compliance costs, changes to client communications and questions about fiduciary responsibility, a new survey found.

The findings contained in the Independent Advisor Outlook Survey commissioned by Charles Schwab aren’t exactly new, but they are among the first, if not the first, delivered after the final rules were published in early April.

Of the 930 RIAs surveyed, 65 percent said they expect the rule to create more compliance costs for their firms and 62 percent said they expect changes to the ways in which RIA firms communicate with clients about retirement investments.

Another 57 percent said they expect more questions or interest from clients about their RIA’s fiduciary responsibility.

The survey, conducted online from April 19 to May 1, polled advisors employed by independent investment advisor firms whose assets Schwab holds in custody. The firms surveyed represent more than $300 billion in assets under management.

The DOL’s new fiduciary rule is designed to curb conflict of interests among advisors recommending products into retirement accounts.

Opponents say the DOL rule only makes it more difficult and expensive for advisors to do business and that many advisors will stop servicing marginally profitable accounts.

RIAs get paid through a fee or split their income from fees and commissions and RIAs compete with other channels — wirehouses, banks and broker-dealers — to sell advice, investment and insurance products.

Initial fiduciary rule requirements go into effect April 10, 2017, with the remainder of the regulation going into effect Jan. 1, 2018.

Other Than Costs, RIAs Expect Few Big Changes

A majority of respondents in the Schwab survey said the rule would raise the cost of doing business, but a minority of respondents said the rule would create other challenges as well.

Questions about the DOL rule were included with other sets of questions around the market outlook and future business strategy.

Thirty-five percent of respondents said they expected more challenges for their firms to differentiate themselves from wirehouses. Some other results include:

•  36 percent of respondents said they expect more competition, while 35 percent said they expect changes to the types of investment products and solutions they offer.
• 22 percent said they expect a change to their organizational structure.
• 73 percent of respondents were very optimistic about the opportunities for RIA growth in the next five years and 66 percent said they expect more competition to secure new assets five years from now.
• 65 percent believe that the need to differentiate their RIA from the competition will rise over the next five years.

The survey was conducted by Koski Research on behalf of Schwab and the margin of error was plus or minus 3.2 percentage points.

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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