Let the Games Begin: New Fiduciary Rules Could Trigger A Death-Match Among Advisory Firms

The new fiduciary rule could trigger a slug-fest among consultants. A recent panel of broker dealers and registered investment advisors mused that the climatic changes of fiduciary responsibility could lead to the extinction of some of the less adaptable “generalist” advisors.

According to Investment News:

“We think there will be a lot of plans in play,” said J. Fielding Miller, chief executive of CAPTRUST Financial Advisors. “This is kind of like prime hunting season for our industry.”

As opposed to retirement “specialist” advisers, who derive most of their business from the defined-contribution-plan market, generalists, or “dabblers,” tend to derive most of their business through wealth management and may have only a handful of retirement plan business.

The Department of Labor’s new rule, which raises investment advice standard in retirement accounts, puts pressure on the dabblers to reconsider if they want to be in the retirement business, Mr. Miller said Tuesday morning at the National Association of Plan Advisors’ 15th annual 401(k) summit in Nashville.

INCREASED LITIGATION RISK. Several smaller firms will struggle to comply with the new rule, and the additional risk of private litigation action will “scare” some providers to turn away from the retirement business, according to Edward O’Connor, managing director of retirement strategy at Morgan Stanley.

Rolling Over the Rollover Shops

Additionally, Brokers that made lots of money on plan rollovers may be in for a rough ride.

From Investment News:

The panelists also discussed the impact of the rule on rollover business, saying there will likely be less rollovers as fewer brokers and advisers recommend rollovers, and more participants will keep their money in-plan as a result.

Retirement assets staying in plan will be a boon to plan providers, the panelists said.

“This is definitely a tailwind for them,” according to Mr. Chetney. “There will be less ‘shysters’ trying to take money out on an unreasonable basis.”

Those firms for which rollovers represent a primary part of their economic model will have to rethink that business model, according to Mr. O’Connor. “Rollovers will become a less important part of anyone’s business model,” he said.