Advisors affiliated with 1st Global will still have access to the broader menu of funds through Fidelity Clearing and Custody, 1st Global’s clearing firm.
“We needed to … limit the direct providers so we can get a robust [data] feed” for compliance and automation, Knoch said, while preserving the check-and-app option, which works well for many small investors.
And if the industry moves to so-called “clean” shares, “I don’t know how you operate those direct,” Knoch said. “I can’t help but wonder if a policy like that ends direct [business] because you don’t do ETFs or stocks direct.”
Mutual funds themselves may turn away from the custody business. In what my be a first, the Hartford Funds last month began charging a $30-per-year fee for shareholder accounts. Beginning in October, Hartford will no longer accept new direct accounts, although existing accounts may stay and pay the new fee.
A Hartford spokesperson did not comment by press time.
“I presume the motive is that it’s less burdensome to rely on clearing partners” than holding the assets directly, Knoch said of Hartford's action.
Industry observers expect more mutual funds to follow suit.
Meanwhile, some brokerage firms have rolled out the red carpet to get advisors to consolidate fund assets onto brokerage platforms.
In January, the Advisor Group introduced a no-transaction fee mutual fund account as an alternative for direct fund business. The Direct Choice account offers funds from 14 fund partners, with no transactions fees, ticket charges or IRA fees, said Allison Pratt, vice president of sales at Advisor Group.
“We created the account … with the same economics as doing business directly,” Pratt said.
Depending on what share classes are available for the account once the DOL rule goes into effect, Advisor Group will eliminate new direct business, Pratt said.