Advisers find hidden opportunities in the fiduciary rule
Weeks after its implementation date, the fiduciary rule enjoys broad support among clients as well as advisers. What's more, planners report they're seeing a boost to the bottom line.
That silver lining is a direct result of how firms responded to the regulation. Companies introduced new employee training programs, compensation structures, and technology systems among other initiatives, according to a new study by Boston-based research firm Aite Group.
Among RIAs, 81% say that they favor either keeping the fiduciary rule as is, or preserving the rule in a modified form, indicating "that they see benefits to elevating the standards across the business," writes Denise Valentine, the author of the report.
Since RIAs are already subject to fiduciary requirements, the impact of the rule will generally be more modest for them than broker-dealers and other types of advisers, Valentine observes.
"Meeting the higher requirement certainly takes greater effort, and this would elevate the competitive field in terms of performance and compliance costs," Valentine says.
But RIAs view the rule only slightly more favorably than other advisers that the Aite Group canvassed, and a decided majority favor keeping the rule on the books in some form. When asked how the Department of Labor should proceed as it reviews the regulation, only 24% of advisers said that the department should "kill it." Half of respondents want to amend the rule, and 26% saying they would be happy to let it stand as is.
Respondents were slightly more likely to characterize the fiduciary rule as an opportunity than a challenge.
Those who take an optimistic view of the rule say that it has compelled them to take a valuable inventory of their client accounts with an eye toward "profitability evaluations."
Additionally, survey respondents say that the compliance exercise brought on by the regulation helped them boost the bottom line by "streamlining operations and re-evaluating legacy products." Some firms have also been moved to adopt new technologies in response to the rule that have been a boon for advisers.
"Financial advisers see market disruption and confusion as opportunity to engage new clients and offer new services to existing clients," she writes.
AN UNCERTAIN FUTURE
Valentine acknowledges that the future of the rule is far from certain, citing a Trump administration that "loathes regulation" and has already called for a regulatory review. "It is highly likely the rule will be amended, and the rule could be rescinded," she concludes.
Nevertheless, even if the Labor Department scraps the regulation, it has made an impact that isn't likely to disappear. Advisers polled by the Aite Group reported that clients with whom they had discussed the rule overwhelmingly favored it (49%) over the slim minority (6%) who viewed it negatively. More than one-third of respondents say that their clients had mixed reactions, and 6% say their clients were neutral about the regulation.
In part, those views could stem from the efforts firms have taken to shield their clients from the impact of the rule. Approximately three-quarters of respondents say that their firms have avoided raising fees in response to the fiduciary rule, a finding Valentine calls "eye-popping."
"This appears contrary to heavy media coverage that says clients would experience dramatic increases in product costs," Valentine says.
But perhaps more fundamentally, the heated and protracted debate over the rule has introduced the concept of fiduciary duty into the popular consciousness, thereby raising consumers' expectations that financial professionals will offer advice that's in the best interest of their clients.
"Even if one expects the rule to be overturned, the topic is now mainstream and likely to produce client inquiries regardless of the final DoL decision," Valentine writes.