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The Least Affected by the DOL Fiduciary Rule

The four Large brokerages have emerged among the least affected by the DOL Fiduciary Rule to hit the financial advice market in decades

Investment News, Christine Idzeli., reported, on May 22, 2016, about the impact of the disruptive Labor Department fiduciary rule, the wirehouses have sought to reassure their shareholders that the sky is not about to fall. Bank of America Corp.’s chief financial officer, Paul Donofrio, said during an earnings call last month that the Department of Labor’s new rule will affect less than 10% of the $2 trillion in assets at its wealth management business. During Morgan Stanley’s first-quarter earnings call, CEO James Gorman said of the DOL Fiduciary Rule, “it’s not the be-all and end-all” for the bank’s brokerage business.

The wirehouses have good reason to minimize the impact of the DOL Fiduciary Rule, which requires financial advisers to put their clients’ interests ahead of their own when giving retirement advice. In the final version, the Labor Department threw the big broker-dealers a bone by allowing them to continue selling proprietary investment products in the retirement market. Even without the reversal on proprietary products, the wirehouses are probably better-positioned to weather the fiduciary storm than many of their counterparts, especially small, independent broker-dealers with limited resources. The cost of compliance — and even the ability to analyze the rule and figure out what they will have to do to comply —favors bigger firms with deep pockets.

(More insight: Advisory firms now face the challenge of adapting to the fiduciary rule)

Still, the main challenge of implementation lies ahead. “They’re dealing with such a large pool of advisers,” said Danny Sarch, president of wealth management recruiting firm Leitner Sarch Consultants. “You got this extra liability that the firms haven’t put their arms around yet.” The wirehouses — Morgan Stanley, Bank of America Merrill Lynch, Wells Fargo & Co. and UBS Group AG — have been combing through the lengthy, prescriptive regulation released April 6. It prompted a sweeping review of their business models and technology, including the supervision of the more than 50,000 advisers at the four firms combined.
“We are in the process of digesting the 1,000-plus pages of this DOL Fiduciary Rule and related exemptions,” Christine Jockle, a spokeswoman for Morgan Stanley, said in an emailed statement. “We have a year before the first stage of the rule goes into effect, which gives us time to determine the new policies and procedures we will implement to comply.” The firm’s been preparing in part by making the necessary investments in technology, and it is setting up a fiduciary help desk for its advisers, the spokeswoman said last month.


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