A new survey finds a big uptick in advisor optimism about the impact of the Labor Department’s fiduciary regulation – even as a significant number are planning to exit, or rethink, their careers as advisors.
The report, by Fidelity Institutional, finds that more than a quarter (29%) of financial advisors see the Department of Labor (DOL) investment advice rule as having a positive impact on their businesses — a 17% increase since January. However, less than a quarter of advisors suggested that their firms will more actively pursue retirement assets as a result of the rule, and just half of advisors expect client engagement and collaboration to increase as a result of the rule.
On the other hand, as result of the rule, 1 out of 10 advisors say they are planning to leave or retire from the field earlier than expected, and nearly one in five (18%) are reconsidering their careers as advisors. Nearly half (44%) of advisors are seeking industry solutions to help them comply with the DOL rule.
Making Preparations
The study found that about half (54%) of advisors have taken some action to prepare for the rule, compared with only 20% in January (three months before the final rule was published, it should be noted) who indicated that they had taken some action. National brokerage advisors showed the most progress in their planning, while other broker-dealers and RIAs showed significantly less. According to the study, half of advisors have started to determine which of their accounts may be appropriate for either a level-fee compensation model or a prohibited transaction exemption, like the Best Interest Contract Exemption (the “BIC”).
Not surprisingly, the study found that many RIAs may not believe that they need to plan for the rule given that they are already fiduciaries, and that only half of RIAs reported that they will reevaluate how and when they recommend rollovers from 401(k)s to individual retirement accounts (IRAs).
Feeling Better?
Time – or perhaps the emergence of the final regulation – does seem to be having a positive impact on perceptions. The study found that, compared with January, advisors are more positive about the impact of the rule on their businesses, and some are seeing new opportunities emerge. For example, one quarter of advisors now expect to see a positive impact on their ability to acquire and retain clients and their ability to grow or maintain a profitable book of business — twice the percentage who felt that way in January.
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This increase in positive impact carries across the advisor segments. Asked whether the rule would have a positive impact on their ability to grow and maintain a profitable book of business, those who said “yes” by segment were:
- 28% of RIAs (up 6% since January);
- 24% of broker-dealers (up 15% since January); and
- 19% of national brokerage advisors (up 8% since January).
However, while those trends are certainly positive, they remain far short of a majority.
Leveling Up?
Advisors expect to manage two-thirds (67%) of their retirement assets via a level-fee compensation model. Nearly 4 in 10 advisors have already determined which accounts may be appropriate for the level-fee model. Advisors also anticipate a personal increase in their use of fee-based compensation by 10% to offset a 10% drop in commissions.
Advisors expect to manage 30% of their retirement assets by leveraging a prohibited transaction exemption, such as the BIC. Nearly one in five advisors has already determined which accounts may be appropriate for an exemption.
The study found that the BIC is more popular with national brokerage and broker-dealer advisors, showing a 7% increase since January among national brokerage advisors in anticipated assets managed using exemptions and a 4% increase since January among broker-dealers.
Reevaluating Smaller Clients
Two-thirds of advisors plan to reevaluate the types of clients they work with as a result of the rule, and 54% plan to let go or transition smaller clients. However, approximately 10% fewer advisors were of this opinion now than in January. (Note: the 485 advisors who completed the survey in January may have been different than the 459 advisors who completed the survey in August, which might also account for a change in sentiment.)
About a third (36%) of advisors reported that their firms added or plan to add an automated investment offering as a result of the rule – and also as a result of the rule, one in five advisors indicated their firm is actively pursuing acquisitions.
