As brokerage firms work toward implementation of the DOL rule, the old-style direct mutual fund business is shrinking fast.

As one indication of that trend, officials at Pershing LLC last month revealed that the movement of assets held directly at fund companies has accelerated this year.

“Year to date, we’ve had 450,000 [directly held] positions move over from what was direct check-and-app business to a brokerage account,” said Mitch Bell, a Pershing director during the firm’s annual conference in June.

Pershing saw 300,000 of those types of direct transfers in all of last year.

Direct business, also called “check and application” or check-and-app business, has traditionally been used by independent reps who like to custody directly with product sponsors to cut administrative fees and nuisance charges.

But that style of business is dissipating as broker-dealers look to consolidate direct business in-house as a result of the DOL rule, which requires stricter supervision of the commissions clients pay and of the conflicts between different products.

At 1st Global, a broker-dealer catering to accounting firms, the number of directly held mutual fund accounts is down 10 percent since the beginning of 2016, said David Knoch, president. Through the first six months of this year, the number of new direct accounts was down about 20 percent.

“By year-end, I project a little over a third of our direct accounts will be closed,” Knoch predicted. At that time, the firm will end selling agreements with the 80 fund companies its reps can now custody with, and next year it will begin limiting direct business to just five of the larger providers—American Funds, Oppenheimer, Invesco, John Hancock and Franklin Templeton.


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