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FSI Says Costly DOL Fiduciary Rule Affects RIAs Too

Brokers aren’t the only ones who should be concerned about the Department of Labor’s fiduciary proposal, according to a brokerage industry trade group. The Financial Services Institute reiterated Tuesday that imposing a fiduciary mandate on advisors to retirement accounts would be a costly and complex burden for all advisors, regardless of business model.

“The proposal applies to both broker/dealer advisors and advisors of investment advisory firms,” David Bellaire, FSI’s executive vice president and general counsel, said in a call with press on Tuesday. If advisors working at either a b/d or an RIA provide conflicted advice or differential compensation, they would be required to comply with the procedures to disclose those exemptions.

Pershing Advisor Solutions’ CEO Mark Tibergien agreed, saying last month the implications of the proposal were “grave” for RIAs. “Even registered investment advisors will be potentially impacted by it because there will be a different standard as defined by the Department of Labor that will affect all kinds of retirement accounts, including IRAs.”

“There are two different fiduciary duties at play here," Bellaire said Tuesday. “One is long established under the Advisors’ Act of 1940 and applies to investment advisors. A new proposal from the Department of Labor that would apply to any financial advisor or any financial institution that meets the definition. Achieving compliance with the ‘40 Act doesn’t solve your obligations to comply under the new rule.”

FSI is concerned that the proposed best interest contract exemptions, which allow for exemptions to the rule under certain circumstances if clients sign a waiver, would keep business away from advisors.

Bellaire says that clients tend to shop around for an advisor, having discussions with several before signing on. Under the current proposal, clients would have to sign a best interest contract when they walked in the door, Bellaire says. For the clients in existing retirement accounts that are commission-based, they would be unable to get advice until after they signed a contract.

FSI also raised concerns around the proposal's requirement that firms disclose all direct and indirect compensation that is, or could be, earned on every investment for every financial advisor, the firm or its affiliates on the firm's website. “This is a hugely complex and costly undertaking that firms do not currently provide in any format,” Bellaire says.

The proposal also requires firms to provide the total costs of any transaction over one, five and ten-year periods, both at the point-of-sale and again annually. “It requires projecting investment growth, which is in contravention of FINRA and NPC rules,” Bellaire says.

The FSI is also concerned it would prohibit putting client money in non-traded REITs, business development companies and other alternative investments.

The organization will file its comment letter next Tuesday, as well as release an analysis of the Labor Department’s cost-benefit impact study done by Oxford Economics. 

“We’re not just offering complaints with the current proposal, our comment letter will also include alternate approaches we think will achieve the Department of Labor’s goals without the costs, expense and confusion the current proposal will result in,” Bellaire said, including ways to “leverage disclosures that are already provided and available and reposition them so that they address the Department of Labor’s concerns.”

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