DOL Fiduciary Rule
department of labor

Report: Fiduciary Rule a Boon for Passive Products

Forty-five percent of advisors plan to increase their allocations to ETFs, and nearly a third expect to boost allocations to passive investment products as a result of the DOL rule, Cerulli research shows.

As the Department of Labor’s fiduciary rule takes effect in a few months, barring any Trump administration action, advisors are reconsidering the products they use with clients and the fees associated with those products.

Many believe lower cost products pose less business risk, according to a new report by Cerulli Associates. The research shop found that 45 percent of advisors plan to increase their allocations to ETFs and nearly a third expect to boost allocations to passive investment products as a result of the DOL rule.

“The major headline emerging from the ruling is the cost pressure facing asset managers, advisors, and broker/dealers, which coincides with another significant trend during 2016—the rise of passive investing,” Cerulli said. 

Vanguard, for example, continued to distance itself from other asset managers, taking in $257 billion for passive investments in 2016, according to Morningstar. U.S. ETF assets grew 20 percent over the last year, with flows reaching an all-time high of $287.3 billion last year, Cerulli said.

Advisors report an average 29 percent allocation to passive strategies, and expect that will increase to 33 percent over the next two years, according to Cerulli. However, asset managers are more pessimistic about active management, with more than half of asset manager firms expecting retail investors to allocate anywhere from 30 to 50 percent of their portfolios to passive strategies over the next two years.

Most advisors expect to make no changes to allocations to alternatives, fixed-indexed annuities, deferred-income annuities and single-premium immediate annuities as a result of the rule. Still, nearly a third (31 percent) plan to moderately or significantly decrease their use of variable annuities, and 27 percent plan a moderate or significant decrease in actively managed mutual funds.

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