New Fiduciary Rule – $14 Trillion In Assets To Be Impacted

Updated on

Lots of talk about the new fiduciary rule

Dave Lutz opines:

Headlines have The Labor Department unveiling a final version of the so-called fiduciary rule today at 11:30 – Applying a fiduciary standard means the broker must put his customer’s interests ahead of his own. This is different from now, when nothing stops a broker from selling you what earns him the highest commissions – “At stake are $17 billion in annual fees that the financial industry overcharges for advice on retirement-saving plans, according to the president’s Council of Economic Advisers”

“A few things are known: Fee-based is in, commissions are out; more paperwork is in and gut-based trading is out” – “RIAs have to ‘fess up to the actual cost of the investments they sell” – “expected to be the most disruptive piece of regulation to come down the pike since the Employee Retirement Income Security Act of 1974

WSJ:  12 Stocks to Watch as U.S. Unveils New Retirement Rules TODAY


·         Large securities firms that focus on affluent investors have already converted many customers from commissions to fees, a shift that is expected to be accelerated by the new rules. They could be in better shape than competitors –> BAC, MS, LPLA, RJF


·         Big providers of index mutual funds and exchange-traded funds, as well as other low-fee funds with solid returns, may benefit from the rules as investors seek to cut costs —> BLK, TROW, WETF


·         Meanwhile, the rules could accelerate the movement away from money managers that primarily offer funds that actively bet on individual stocks, bonds and other assets —> BEN, LM, WDR


·         Big providers of variable annuities could take a hit as the rules may make it more difficult to sell commission-based retirement income products —-> AMP, LNC, MET, PRU


New Fiduciary Rule

AFR opines:

After years of effort, and against massive opposition by some industry players, the Department of Labor has come out with a rule requiring retirement investment advisers to give honest advice – the kind that puts the best interests of their clients first.

Today’s announcement is a huge victory for American workers and retirees. Under the old rules, which have not been updated for forty years, some investment advisers have been held to a best-interests (or fiduciary) standard, but many others have not. Brokers, insurance company salespeople and others have taken advantage of loopholes to promote high-commission investment products that benefit the seller over alternatives that better serve the investor with lower fees, higher returns, or fewer risks. The cost of this kind of conflicted “advice” can run into the tens or even hundreds of thousands of dollars for an individual worker or retiree, and it adds up to more than $17 billion dollars a year for retirement savers in the aggregate, according to the White House Council of Economic Advisers.

The DOL’s new rule closes these loopholes. It has the potential to deliver significant benefits to middle-income Americans in a time of slow wage growth, when many people have trouble setting money aside for retirement in the first place. Support for the rule is widespread: in one major demonstration of that support, more than 225,000 people signed a set of petitions organized by CREDO Action, MoveOn Political Action, Americans for Financial Reform, and Public Citizen, and delivered to Congress and the Labor Department.

The rule is favored by leading groups representing retirees and workers, and by many financial professionals and firms that already adhere to a fiduciary standard. By their example, they show that it is perfectly possible to do so while profitably providing advice to ordinary retirement savers – contrary to the claims of lobbyists for those industry elements that have grown accustomed to the inflated profit opportunities of the regulatory status quo.

Opponents of this rule have taken to calling it “unworkable.” By that they simply mean that it will require them to change a business model that is inherently deceptive and exploitative. The DOL rule is both workable and, very plainly, the right thing to do.

Jamie Hopkins, Retirement Income Program Co-Director at The American College, helped develop the Retirement Income Certified Professional® (RICP) designation notes:


The rollout of the Department of Labor’s new fiduciary rule will impact the entire financial services industry, from insurance agents, to broker-dealers, banks, investment advisers, employers and retirement plan administrators. About $14 trillion in retirement savings could be affected by the rule. The American College of Financial Services Jamie Hopkins, a leading retirement income professor….

Why:  The DOL Conflict of Interest Rule will be one of the most impactful changes to the financial services industry in the past 40 years.

Prof. Hopkins om what the fiduciary rule will entail and discuss how its implementation will likely lead to major changes. Of note:
•       The rule will hasten the move of some companies away from compensation models based on product sales to compensation models based on financial advice.
•       For the first time, IRA investment, asset allocation and distribution advice will be subject to a fiduciary standard of care.
•       The rule will have activities that are exempt from the new fiduciary duty such as for providing education, “order taking”, working with fixed products and certain activities falling under a Best Interest Contract (BIC) exception.


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