Another possible byproduct of the Labor Department’s conflict of interest rule, along with facilitating mergers among insurance BDs, is that banks may be exiting the mutual fund business.
According to a recent article, Huntington Bank in Ohio sold off its mutual fund subsidiary in 2015 not just because it was harder to compete with giant mutual fund complexes but because of perceived conflicts of interest in selling proprietary products to clients exacerbated by the pending DOL conflict of interest rule, along with facilitating merger mania among insurance BDs.
In another report, Edward Jones saw net inflows of $15.6 billion into their proprietary funds within a fee-based asset management program known as Bridge Builder. But the giant BD with 14,000 reps and $900 billion of assets claims there is no conflict because they make no profit from these funds.
Which of course raises questions about whether banks or BDs that also own a DC record keeper may find themselves in a more difficult situation as a result of the DOL rule. That could raise questions about the sale of proprietary products if record keepers are deemed to be fiduciaries. Moreover, that raises further questions about advisory groups creating custom products for sale to their DC clients regardless of whether a separate firm or RIA is created to manage the investments and receive management fees.
This could get interesting.
Opinions expressed are those of the author, and do not necessarily reflect the views of NAPA or its members.
