Pure RIAs say they will see little impact on their businesses since they already operate under a fiduciary standard, while many hybrid firms, which offer fiduciary advice and some proprietary and at times commission-based products, have already adjusted their revenue models.
The Beacon Group has already eliminated revenue share classes in recent years in anticipation of the rule and in response to class action litigation.
“We’ve been practicing what we felt would be the rule’s impacts for the last couple of years, especially as it impacts advice at the rollover level,” Menickella says.
Most advisors sounded positive about the late changes to the rule, which included an exemption that allows advisors to advise their clients on rolling over their employer defined contribution plans into a higher-fee IRA (which is allowed as long as the decision is in the customer’s best interest and certain other conditions are met). In previous versions of the rule, advisors would have been prohibited from rolling accounts over if there were any difference in compensation.
“I think the rule should have some flexibility,” Menickella says. “There are circumstances where added value comes into the equation if the participant goes outside the 401(k), like if they were able to access a wider selection of investments or more strategies that could be implemented. It’s difficult to quantify what that value is.”
In the updated rule, advisors will also be able to recommend proprietary products like fixed index and variable annuities that allow them to avoid telling clients about similar products offered by competitors.
Advisors will also be exempted from the best-interest standard for general communications like newsletters, TV programs, radio shows and conference sessions.
The final version of the DOL rule also gives those businesses providing advice to retirement plans a yearlong grace period to acknowledge their fiduciary status, up from eight months in previous versions.
At the Beacon Group, Menickella predicts an exodus of retirement plans from brokerage platforms to the RIA channel.
“Plan sponsors haven’t really heard this story yet; they’re just starting to today,” Menickella says. “If more brokers come over to the RIA world, it’s going to be more commonplace that people understand what the differences are between broker-dealers and fiduciaries, so to a great extent this is going to help us.”