So, is the DOL rule a non-event, or not?
The Department of Labor’s fiduciary rule will either have an immaterial impact on brokerage firms, or it will limit the products and services they can offer and increase legal risks, according to the firms’ latest SEC filings.
The second-quarter earnings reports of the public brokerage firms released this month contain many of the firms’ first disclosures about the impacts from the final DOL rule, which was released on April 8.
The conclusions are a decided mixed bag.
Some firms said the rule would not have a material impact or the effects were still unknown.
• Ameriprise Financial said it was “continuing to review and analyze the potential impact of the regulations on our clients and … our business.”
• Bank of America Corp., with its Merrill Lynch wealth management unit, said the firm does “not expect this [rule] to have a material financial impact … in 2016, and we continue to evaluate the impact, if any, thereafter.”
• Charles Schwab Corp. said that “based on the company’s evaluation of the final rule to date, the company does not expect the rule to have a material impact.”
• Morgan Stanley said “while we are still assessing the impact of the final rule, given the breadth and scale of our platform and continued investment in technology and infrastructure, we believe that we will be able to provide compliant solutions.”
Two firms warned of potentially ominous consequences.
• Raymond James Financial said that because IRA accounts comprise a significant portion of its business, “we expect that implementation of the DOL rule will result in significantly increased compliance, legal and information technology costs. In addition, we expect that our legal risks will increase due in part to the new contractual rights.” The firm also expects the rule will “limit our ability to provide certain products or services” to IRA investors.
• LPL Financial likewise said the rule “will likely affect the products and services we provide … and the compensation that we and our advisors receive … as well as our regulatory compliance and other costs. … In addition, the DOL Rule creates increased risk of private arbitration and litigation, including potential class action litigation.”
Others didn’t bother to mention the impact from the DOL rule.
TD Ameritrade, Stifel Financial, Wells Fargo Corp., and Ladenburg Thalmann Financial Services, made no mention of DOL rule in their latest quarterly filings.
Two B-Ds Expect Ominous DOL Effects; Others Neutral
August 15, 2016
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If everyone is held to fiduciary duty on every account the prudent processes and technology are institutionalized thus no material impact, the problem is the processes and technology essential for professional standing in advisory services do not exist in a conventional brokerage format. The industry must (1) retool product menus so there is access to real time client holding data required for the continuous comprehensive counsel of fiduciary duty. (mutual funds no longer work). (2) Trade execution must be treated as a cost center to be minimized in the clients best interest not as a profit center in the b/ds best interest as advisors are compensated on the basis of fee for service. (3) Expert prudent process (comprised of financial services: (a) asset/liability studies, (b) investment policy, (c) portfolio construction, (d) performance monitor) authenticated back to statute must be established assuring consumer protections. Objective non-negotiable fiduciary criteria of statrute, case law and regulatory opinion letters will determine market leadership in advisory services. The question is whether the brokerage industry adapt to play. SCW