Advisers’ Optimism Dampened
As the Department of Labor’s fiduciary rule takes effect, some planners express fear that fees may drop and compliance costs may rise.
ADVISERS AND CLIENTS ALIKE ARE GROWING increasingly apprehensive about the economic outlook, despite stock market gains. The aging of the bull market and political uncertainties are contributing to the anxiety, according to this month’s Retirement Adviser Confidence Index — Financial Planning’s monthly barometer of business conditions for wealth managers.
Advisers were also concerned about the implementation of the Department of Labor’s fiduciary rule, which went into effect June 9. The adviser confidence index was down 2.3 points from the previous month to 54.1.
“Nobody knows for sure how to handle the new rule, and every company is different,” one adviser said.
The looming regulation and tough pricing competition have generally lowered fees for retirement plans, advisers said. The rule could lead to higher fees in the long term, however, according to some planners.
“We are concerned about the increased regulations with DOL, since that may affect commission business, broker-dealer rules, class-action lawsuits and our overall cost of compliance and monitoring,” one adviser wrote. “This may require us to raise fees or drop small accounts, if necessary.”
Retirement business dropped, as it has over the past four years in the month after Tax Day, advisers noted. The dollar amount of all contributions into retirement plans and total retirement products sold to clients both fell by double digits.
The turbulent political environment is also causing some jitters, one adviser said, noting that “international
events give me the willies.”
Additionally, the aging of the bull market is putting some clients on edge. “They are concerned with the market, and believe that we could be headed for a correction soon,” one adviser wrote.
At the same time, the rise in equities has given some clients heightened performance expectations, which may account for the 1.6-point uptick in clients’ risk tolerance.
“People now have an expectation that the market will always go up, and expect to get at least the same returns as the major U.S. indices,” an adviser wrote. “This is actually causing us to want to be even more conservative, as valuations are stretched.”
The Retirement Adviser Confidence Index is composed of 10 factors — including asset allocations, investment product recommendations, economic and risk factors, taxes and planning fees — to track trends in wealth management. RACI readings below 50 indicate deteriorating business conditions, while readings over 50 indicate improvements. —