Implementing the proposed Department of Labor fiduciary rule will cost 20 times what the DOL has estimated, says the Financial Services Institute.

Updating the rule will cost the financial services industry and investors $3.9 billion in startup costs, according to an institute study released Tuesday.

The study was conducted with Oxford Economics and focuses on the economic impact of imposing a fiduciary standard for retirement investors as part of the Employee Retirement Income Security Act, or Erisa.

The $3.9 billion does not take into account what investors will lose by not having access to retirement savings advice and does not include the ongoing costs of maintaining compliance with the rule, the study says.

Oxford Economics, which provides economic forecasting and modeling, interviewed more than three dozen executives of companies that would be affected by the new rule and analyzed expense predictions made by FSI members, to gather its data, according to FSI.

The DOL held a series of hearings on the proposed rule in Washington last week and a decision on a new standard is expected early next year.
 
The institute, a professional organization that represents independent financial services firms and independent financial advisors, says applying a fiduciary standard to retirement plans will mean only high-net-worth investors will be able to access and afford professional retirement investment advice. A fiduciary standard requires advisors to put the clients’ interests first. Advocates say the rule needs to be changed to protect investors, while opponents say, as written, the rule is too complicated.

“This study shows that the DOL’s proposed fiduciary rule would be costly and burdensome to both the independent financial services industry and the investors that rely on the critical advice they receive,” says Dale Brown, FSI president and CEO.

“It also illustrates the unintended consequences the rule will have on hard-working Americans trying to save for retirement, particularly low- and moderate-income investors who need advice the most,” he adds.

Small advisory firms will have difficulty surviving if they have to abide by the complicated rule, the study says, adding that complying will entail startup costs of $1.1 million to $16.3 million per firm, depending on the firm’s size.