Findings from a survey of about 600 financial advisors, recently released by the Financial Service Roundtable (FSR), offers a glimpse of what impact the Department of Labor’s (DOL) new fiduciary rule may have on consumers and the marketplace.
The survey was released as the DOL was contemplating administrative action to delay the applicability of the rule, which greatly expands the scope of the definition of who qualifies as a “fiduciary” and, therefore, must abide by certain standards intended to ensure they act in the best interests of their clients when providing retirement investment advice.
“FSR strongly supports a ‘best interest standard,’ but the rule’s overly-complicated red tape is already harming the ability of Americans to save for retirement,” FSR Executive Director Eric Hoplin said in a report detailing the survey’s findings.
The survey found that, contrary to the rule’s intention, 50 percent of respondents believe that it will restrict them from serving their clients’ best interests. Thirty-three percent said they believe the rule will have no impact on their ability to serve the best interests of their clients, and only 12 percent said it will better enable them to do so.
The results show that 73 percent of respondents believe the rule impacts their work “a lot” or “some,” and the rest indicated it has little or no impact on their work or that they were not sure.
The report includes breakdowns of how the changes are expected to affect individual designations of professional advisors.
“Dually registered advisors are somewhat more likely to be seeing an impact on their work methods than those who are not dually registered,” the report states.
Respondents were given a list of possible changes resulting from the rule’s implementation and asked to indicate if they thought a certain scenario would “definitely” or “probably” happen, or “has already happened.”
Eighty-three percent indicated that the rule likely would mean more paperwork for clients, including the need to sign more contracts or fill out more complicated paperwork, such as contracts enabling advisors to continue working on a commission basis. The findings note that firms of all sizes believe that the rule will result in more complicated paperwork for clients. Even respondents that indicated that the rule would have little or no effect on their business said it would increase the amount and complexity of necessary paperwork for clients to sign.
Sixty-eight percent said their companies likely would take on fewer small accounts, and 63 percent said they would have to limit the number of investment options they could offer clients. Approximately 10 percent of respondents said they already have seen such effects from the rule.
Advisors whose clientele has an average net worth less than $25,000 indicated they were far more likely than others to direct more clients to automated advisor services, and to take on fewer small accounts. Advisors with clientele with an average net worth of $250,000 or more indicated they also would take on fewer small accounts than advisors with mid-range average clientele net worth.