Executives at AIG Advisor Group came out swinging against the Department of Labor’s fiduciary rule-making as they opened the firm’s annual advisor conference in San Antonio, Texas, on Tuesday.
A proposed “best interests” contract that commissioned reps would have to use with IRA investors could harm client relationships, Advisor Group officials said.
“Many clients will push back [and] feel it’s intrusive,” said Erica McGinnis, chief executive officer of AIG Advisor Group, in an interview with Financial Advisor. They will see the relationship coming down to a “contract, with legalese,” she said.
“It’s hard to envision what it will look like or what it will take to comply” with the DOL’s rule, said McGinnis, who runs AIG’s four broker-dealers—FSC Securities Corp., Royal Alliance Associates, SagePoint Financial and Woodbury Financial Services.
Between them, the firms have about 6,000 advisors and $160 billion in assets.
Last week, the DOL took the final round of public comments on the rule. A final version is expected to come out early next year.
The conference’s opening general session included a panel of AIG officials who joined Dale Brown, chief executive of the Financial Services Institute, in blasting the department’s rule-making.
Increased liability from the proposal’s inclusion of a right of private action for alleged violations of the best-interests contract could open up advisors to court claims and class actions, said Joe Terry, AIG Advisor Group's chief supervision officer.
The DOL’s regulatory impact analysis “misapplied the results of a single study, then amplified it across the industry to come up with [an estimated] $17 billion” cost from conflicted advice by advisors, Brown said.
But an Investment Company Institute study shows advisors actually steer clients to lower-cost funds, Brown added.
McGinnis expects more Advisor Group reps to shift more business to fee-based platforms in response to the rule, but that could disadvantage smaller investors, she told Financial Advisor.
That shift could also impact sales of variable annuities, where fee-based options are limited, she added.
“We think advisors could move that [VA] business somewhere else,” she said.
AIG Advisor Group estimates that technology costs for implementing the fiduciary proposal would run somewhere around $5 million, close to what the DOL estimated for larger firms.
But cost isn’t the only issue, said James Clabby, chief information officer for the AIG B-Ds. “We could easily be sidetracked ... for a whole year” implementing the new rule, he said in an interview.
With tighter curbs on what fees broker-dealers could earn from product vendors and other implementations costs, “we may find we’re in a situation where [industry] payouts [to advisors] are stressed” and client fees raised, Matthew Schlueter, chief operating officer at AIG Advisor Group, said in an interview.
The rule has aroused opposition in Congress, where several pending bills would deny funding to the department to implement the rule. Lawmakers could also stop the rule-making with legislation. But those efforts don’t yet have enough bipartisan support, said Richard Loconte, associate general counsel and deputy head of affairs for AIG.
However, “once the rule is finalized, there is a potential for litigation” to stop it, Loconte told advisors.
Nevertheless, advisors should “assume the rule is going to go into effect as it’s proposed,” Brown said, but at the same time make their views known to Congress and the DOL.
“We need everyone’s voice on this,” McGinnis told advisors.