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fiduciary rule


The financial services industry waged a fierce campaign against the Department of Labor’s new so-called “fiduciary” rule requiring retirement advisers to follow a stricter standard with their clients.

At the end of the day, the government won – sort of. The rule is set to go into effect, but not fully for 18 months and not even slightly until next April. This is to allow the financial industry time and resources to prepare for implementation.

When the rule is fully in force, including a couple of exemptions that still allow advisers to collect fees and commissions under certain conditions, there will be major winners as well as losers.

Winners

The primary winner will be the investor who will now be joined on the same side of the table by his financial adviser.

As advisers begin to shift clients to lower-cost investment options other winners on the sales side will include robo advisors, exchange traded funds (ETFs) and index funds in general – especially since a wealth of data exists supporting the notion that, on the whole, passively managed index investments perform better than those that are actively managed.

Some public entities are also expected to come out ahead by the time the new DOL rule is fully implemented.

BlackRock Inc. (NYSE:BLKF) will see more business for its iShares division, the world’s largest family of exchange traded funds (ETFs).

State Street Corp. (NYSE:STTC) and its State Street Global Advisors segment focuses on the very things investors will be looking for - index funds and ETFs. The same is true for WisdomTree Investments (NASDAQ:WETFC).

Morgan Stanley (NYSE:MSD) has many customers in fee accounts and may not see much impact. The same can be said for Bank of America (NYSE:BACD) Merrill Edge. In addition, it’s expected that some commission paying Merrill Lynch customers may switch to Merrill Edge.

LPL Financial Holdings Inc. (NASDAQ:LPLAC) has indicated that it expects to grow assets as many small brokers may seek to join forces to be able to handle the costs associated with compliance with the new rule.

Losers

Brokerages, individual advisers with small accounts and those in the financial services industry that have relied on commissions in the past will have to retool operations and practices in order to avoid coming out on the losing end.

Privately owned Edward Jones said it plans to roll out new low-cost fee-based accounts for investors with as little as $5,000. According to the firm, these accounts will feature a range of mutual funds and ETFs without all the bells and whistles found in accounts with higher minimums.

Franklin Resources (NYSE:BENC), which has underperformed may suffer as a result of the new rule.

Insurance companies expect to see a slowdown in the sales of variable annuities. This has led companies like Prudential Financial Inc. (NYSE:PRUF) to indicate it will retool its annuities.

Other companies such as MetLife Inc. (NYSE:METF) have already started the retooling process by selling off commissioned salespeople. Whether the tactic will help remains to be seen.



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