US wealth man­agers pre­pare for La­bor rule

The Pak Banker - - MARKETS/SPORTS -

Wealth man­agers in the United States are cutting fees, re­ly­ing more on tech­nol­ogy to give ad­vice and re­duc­ing the min­i­mum amounts clients can hold in their bro­ker­age ac­counts, all in prepa­ra­tion a new rule gov­ern­ing how they ad­vise re­tire­ment savers.

Some ad­vis­ers are even job hunt­ing, wor­ried that the rule's im­pend­ing in­tro­duc­tion could slash their com­pen­sa­tion. The Depart­ment of La­bor ( DOL) is ex­pected to pub­lish the so­called fidu­ciary stan­dard in the next few weeks. It re­quires wealth man­agers to put the in­ter­ests of re­tire­ment savers ahead of their own.

Sup­port­ers of the new rule, such as con­sumer groups and re­tiree ad­vo­cates, say it will pro­mote trans­parency and pro­tect in­vestors from be­ing sold un­nec­es­sary fi­nan­cial prod­ucts that in­crease com­mis­sions for bro­kers and cre­ate con­flicts of in­ter­est. The wealth man­age­ment in­dus­try has op­posed the pro­posal for years, ar­gu­ing it will drive up costs, curb com­mis­sions and ul­ti­mately hurt cus­tomers be­cause firms could aban­don clients with smaller, less lu­cra­tive ac­counts.

But af­ter five years of fight­ing, the in­dus­try has ac­cepted that the end is in sight.

"We're work­ing down two paths-ad­vo­cacy to keep fix­ing the rule as much as we can and help­ing mem­bers com­ply," said Chris Paulitz, se­nior vice pres­i­dent of membership and mar­ket­ing at the Fi­nan­cial Ser­vices In­sti­tute, the trade group for in­de­pen­dent bro­ker-deal­ers.

"If firms are pay­ing at­ten­tion, they've set up in­ter­nal DOL task forces that are in­ven­to­ry­ing clients and pre­par­ing for the rule al­ready."

The La­bor Depart­ment first pro­posed a new rule in 2010 but with­drew it in 2011 af­ter wide crit­i­cism from in­dus­try of­fi­cials and law­mak­ers.

A mod­i­fied ver­sion was pre­sented in 2015 with the goal of pro­tect­ing re­tirees from buy­ing un­nec­es­sary prod­ucts that line bro­kers' pock­ets with fees and com­mis­sions.

"We have been com­mit­ted to mak­ing changes and im­prove­ments based on pub­lic com­ment and feed­back, but can­not say to what ex­tent the fi­nal rule will dif­fer from the pro­posal," a La­bor Depart­ment spokesper­son told Reuters. The agency re­viewed com­ment letters and live tes­ti­mony from in­dus­try of­fi­cials in sup­port of and against the rule. In Jan­uary, the re­vised pro­posal was sent to the White House's Of­fice of Man­age­ment and Bud­get.

Ahead of the rule's in­tro­duc­tion, some firms are try­ing to a avoid los­ing ac­counts by cutting fees and re­duc­ing the min­i­mum bal­ance that clients need to have.

While some op­po­nents have said the rule will force them to aban­don clients with small ac­counts, oth­ers are opt­ing to ad­just their ac­count of­fer­ings and in­clude lower-cost, fee­based ac­counts. St. Louis-based firm Ed­ward Jones is pi­lot­ing low-cost ac­counts and charg­ing an an­nual fee for clients with a min­i­mum of $5,000.

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