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Fiduciary Rule Already Fanning Fund Changes

A new survey finds that a third of advisors who work with employer-sponsored DC plans already plan to make changes to the mutual funds they use – before the fiduciary rule even goes into effect.

That said, just half of the respondents said they planned to meet with plan sponsors to explain the rule’s impact, while just 17% are very likely to plan such a meeting, according to the survey of 251 advisors by Ignites Research. Moreover, fewer than half (40%) will review service providers for their DC plans.

The survey polled retirement advisors on Financial Times’ “FT 401” list of top retirement advisors. The average FT 401 advisor manages $950 million in defined contribution plan assets and has 18 years of experience advising DC plans. Of the average FT 401 plan advisor’s total revenue, 80% currently comes from level-fee sources, while just 20% comes from variable compensation.

Class Clans

The vast majority of responding advisors (80%) think share class suitability is the “top factor” that will help financial advisors prove that they’re acting in their clients’ best interest. Within fund share classes, mutual fund R6 shares – which don’t have loads, 12b-1 fees or administrative fees – are where FT 401 advisors expect the fiduciary rule to spark the most growth.

More than a quarter (26%) of advisors polled will increase their use of index equity mutual funds, while another 23% will turn to a mix of passive and active products. Exchange-traded and target-date funds received 17% and 12% of the vote, respectively.

Micro ‘Scope’

Around 30% of the respondents plan to take on fewer micro DC plan clients as a result of the impending implementation of the fiduciary rule. And 11% said they were likely to reduce the number of micro DC plans – those with less than $5 million in plan AUM – that they currently advise. At present, micro plans account for roughly a third of FT 401 plan advisors’ total DC plan assets under management.

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