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.

Financial Planning - - BENCHMARK - To­bias Salinger

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. —

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