DOL Conflict of Interest Rule Could Force Staff Changes

Fifty-four percent of broker/dealers (B/Ds) surveyed believe some of their advisers will retire rather than sell under the strict  requirements for compliance with the Department of Labor’s (DOL) new fiduciary rule, according to a LIMRA Secure Retirement Institute (LIMRA SRI) study.

The research matches other recent analyses to emerge showing that in some important ways the DOL rulemaking is redefining what it means to be an adviser. The LIMRA SRI research reveals most B/D firms, about eight in 10, “plan to employ both the Prohibited Transaction 84-24 exemption and the Best Interest Contract exemptions allowed under the new rule,” while nearly three-quarters will use so-called fee-leveling or fee-offset strategies. Most firms said they will employ multiple strategies in order to ensure compliance, LIMRA SRI observes.

“Because the rule increases advisers’ liability, B/Ds also expect their advisers to stop providing advice to clients with lower IRA account balances,” says Kathy Krozel, research director, LIMRA Distribution Research. “At a time when more Americans need access to advice, it appears that the new DOL rule may actually reduce access for middle income consumers.”

The Institute found that two in three B/D firms “believe the increased cost of compliance will ultimately be passed on to the consumer,” while the vast majority agree that the rule “will increase consolidation in the industry,” most likely impacting smaller firms.

“Historically our research has shown that larger companies benefit from the economies of scale when there is significant change in the market,” explains Krozel. “Smaller firms may be unable to afford the high cost of implementing the changes needed to comply with the rule and some may opt to merge with their larger counterparts.”

Other research highlights show a strong majority (75%) of B/Ds believe the risk of litigation would be exacerbated by the DOL fiduciary rule. “Seven in 10 think the rule will force changes to adviser compensation practices and structures,” survey data shows. “The cost of compliance—both in changing business practices and reporting—round out the last two impacts cited by B/Ds.”

Additional research and information is available online here.