Broker-dealers face rising compliance costs from DOL rule, pricing competition from robo-advisers

Pershing COO says B-Ds are caught in a vise and need help with easing internal expenses

Jun 8, 2016 @ 1:36 pm

By Bruce Kelly

At the same time they are facing increased costs to comply with the Department of Labor fiduciary rule, brokers-dealers are facing increased pressure on their fees from robo-advisers, according to executives at clearing and custody firm Pershing.

“I believe that the Department of Labor's conflict of interest rule will absolutely create an internal expense for our (client) firms to have to try to comply with, ” Lori Hardwick, Pershing's chief operating officer, said during an interview at the firm's INSITE conference in Orlando, Fla., on Tuesday.

“Regulations are causing a lot of internal pricing pressures on firms as the robo side is compressing pricing at the same time,” she said. “As those internal expenses are increasing, and while the cost of advice is coming down, mostly driven by the robos, it creates a little bit of a vise for our clients.”

Lisa Dolly, Pershing's CEO, said early guesses at the cost to broker-dealers to implement the DOL rule for retirement accounts are likely too low and will need to be revised upwards.

“I don't think we've done a full assessment of all of our internal costs,” Ms. Dolly said. “We have heard what other firms (expect). I think (costs of implementing the DOL) would be higher than what they are estimating because it's so early in the process. The rule was just defined in cement a few short weeks ago.”

“There's more detail that needs to come out” before Pershing could be in the position to fully understand the costs of the new DOL fiduciary rule, she said.

Independent broker-dealers have been fretting for months about how much the DOL rule will cost to put into practice. Some broker-dealers have revealed how much they were spending on complying with the new rule in the months before April, when the DOL released its revised proposal.

Cambridge Investment Research Inc. told InvestmentNews in the winter it expected to spend $15 million to $17 million to upgrade its technology and make other operational changes.

Another IBD, Commonwealth Financial Network, at the time estimated that implementation would cost $6 million. That would include building a compliance infrastructure and bringing 479,000 IRA accounts into compliance.

“We're trying to really concentrate on solutions that will ease that internal expense as much as possible,” Ms. Hardwick said.

Pershing on Wednesday morning announced a variety of solutions and resources to help financial services firms comply with the DOL conflict of interest rule. They included: revised advisory programs; compliance options when the new best interest contract exemption, or BIC, is warranted; and increased supervision tools.


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