Most Advisors Say Fiduciary Regulation is Holding Them Back

Advisors across geographic regions, at large and small firms, and across professional designations all tend to agree that the Department of Labor’s fiduciary rule will have some impact on their business models, according to new survey results.

Conducted by Harper Polling on behalf of the Financial Services Roundtable (FSR), the survey of 600 financial advisors throughout the U.S. finds that only 12% of financial professionals believe the fiduciary rule is helping them serve their clients’ best interest. In addition, 75% of respondents report that they will service fewer small accounts due to increased litigation risk and compliance costs.

The survey was conducted one month after the June 9, 2017, applicability date to assess the impact the rule is having on the marketplace. The survey data was included in FSR’s comment letter responding to the DOL’s request for information (RFI) on the rule, as was a survey chronicling similar results.

Impacting Work Methods

Increased paperwork, fewer small accounts and other changes are seen as inevitable results by the survey respondents. While 33% of respondents report that there has been no impact from the rule, those respondents still report more complicated paperwork for clients and servicing fewer small accounts, the survey shows.

Overall, a majority of respondents (50%) report that the fiduciary rule is restricting them from serving their clients’ best interests, with some variation across the geographic regions of the country (Midwest: 53%, Northeast: 55%, South: 45%, West: 49%).

The survey further shows that the fiduciary rule is impacting the work methods of financial advisors, with 73% of respondents saying the rule is either impacting their methods “a lot” (37%) or “some” (36%).

In addition, respondents with a variety of professional designations report that the new rule is impacting their work methods “a lot” or “some” (CFP: 76%, CFA: 77%, CLU: 71%, ChFC: 71%, and JD: 76%). Moreover, dually registered advisors are more likely to report an impact on their work methods (79%) than those who are not dually registered (63%), the study also noted.

When asked about specific changes to work methods that financial advisors say will “definitely, probably, or has already happened” within their company as a result of the rule, the survey shows the following findings:

  • Increased paperwork (83%),
  • Fewer small accounts (68%),
  • Fewer investment options for clients (63%),
  • Fewer mutual fund options (56%), and
  • Higher compliance costs/additional fees (52%).

Client Service 

Advisors servicing the lowest (under $25K) and highest ($250-500K, more than $500K) net worth clients are more likely to say they will take on fewer small accounts. While not an overwhelming number, advisors whose average net worth of their clients is under $25,000 were more likely to say they will direct more clients to robo-advisor services, both online and at call centers (43%).

The survey further finds that while more than half (58%) of advisors surveyed report no client dissatisfaction with service or fees as a result of the fiduciary regulation, more than a third of financial advisors (35%) report that their “clients have expressed their displeasure about the rule’s impact on service or price. Those expressing dissatisfaction increases to 52% among respondents who say the fiduciary rule is restricting their ability to serve their clients, the data shows. In addition, advisors working for larger firms (76-100 employees) are more likely to have received complaints from clients (47% yes) than those at small firms (0-10: 30%).

Another recent comment letter, this one by long-time opponent and fiduciary rule litigant SIFMA, also included the results of a survey conducted by Deloitte & Touche LLP, which included the experience of 21 financial institutions representing a cross-section of SIFMA members, also spoke to the impact of the fiduciary regulation.

Delay in Applicability Date

As we reported here, there has been a flurry of recent activity concerning the fiduciary rule, between comment letters in response to the RFI, DOL guidance and a notice of its intent to delay the applicability date, as well as other studies and surveys on the rule’s impact.

While the DOL announced its intent to further push back the full Best Interest Contract applicability date and extend the transition period to July 1, 2019, FSR argues that a 24-month delay is necessary to avoid further disruption and to allow for regulatory coordination between the DOL and the Securities and Exchange Commission, FINRA, and banking and insurance authorities.

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