Independent broker-dealers prepare for the reality of the DOL fiduciary rule
Firms are already girding for what they say will be the high costs and compliance complexities due to the DOL Fiduciary Rule
Jan 24, 2016 @ 12:01 am
By Mark Schoeff Jr. , Investment News
Mark Schoeff Jr., InvestmentNews.com reported – Independent broker-dealers are already girding for what they say will be the high costs and compliance complexities of a Labor Department proposal that would raise investment-advice standards for retirement accounts.
A final version of the regulation — which has the backing of the White House and survived an attempt to kill it in recent government-funding legislation — is likely to be released in the spring, so that it can go into effect comfortably before the end of the Obama administration. As proposed, it has a tight eight-month implementation period.
The measure includes a legally binding requirement for brokers to act in the best interests of their clients and mandates a long list of fee disclosures. Right now, brokers need only make sure the investments they recommend are suitable for their clients.
The financial industry has been fighting the proposal, saying that it would significantly increase liability risk and regulatory costs for brokers and make giving and receiving advice much more expensive.
But some IBDs are preparing for the reality of advising clients in individual retirement accounts under the new rule.
“It is time to stop feeling sorry for ourselves and get proactive on it, otherwise, we’re going to get behind the eight ball,” said Amy Webber, president of Cambridge Investment Research Inc.
WILL BE COSTLY – Clearing and custody services provider Pershing has held more than two dozen meetings about the rule with brokers and advisers and recently conducted a webinar for more than 300 clients of its platform.
“Sitting back is not the best strategy,” said Rob Cirrotti, managing director and head of retirement solutions at Pershing.
The first thing that IBDs are realizing is that the DOL rule will be costly to put into practice. Cambridge estimates it will have to spend $15 million to $17 million to upgrade its technology and make other operational changes.
Commonwealth Financial Network estimates that implementation will cost $6 million. That would include building a compliance infrastructure and bringing 479,000 IRA accounts into compliance.
“That’s nuts, when you think about how much manpower and resources it’s going to take to accomplish,” said John Rooney, Commonwealth managing principal. Read More>>>