US wealth managers prepare for Labor rule
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.