Advisers may drop lower- and middle-income clients due to DOL fiduciary rule: NAIFA survey

Participants said new regulation will drive up their costs

Sep 28, 2016 @ 11:55 am

By Grete Suarez

The Department of Labor's fiduciary rule may cause over half of the retirement financial advisers to give up on their lower- and middle-income clients, according to a survey by the National Association of Insurance and Financial Advisors.

In a survey of 1,167 of NAIFA's approximately 40,000 members, two-thirds said they will lose some or all of their lower- and middle-income clients, while 17% of the advisers are unsure how the rule will affect their ability to serve these clients.

“The DOL rule has a strong potential to be a very bad deal for consumers who are not wealthy, but who are trying to do the right thing for their families by preparing for the future,” said NAIFA President Paul Dougherty in a statement.

The rising cost of doing business is the reason why advisers expect to lose many of their clients.

“Small advisers cannot afford one lawsuit, and the law is so vague," said Robert Schmansky, founder of Clear Financial Advisors. "It seems we need to save and document an immense amount of information… As these issues are resolved in court, compliance and insurance costs will surely rise.

Mr. Schmansky said that it's simple economics: if the cost to provide advice goes up, there will be less providers who are able to stay in business. In the NAIFA survey, 16% of the advisers said they will no longer provide any retirement products or services to clients.

“I see mergers, more advisers offering financial planning only, and some who decide investment services are no longer worth the risk,” said Mr. Schmansky on the effects of the DOL rule on the lower- to middle-income clients.

Mr. Dougherty's view is more grim.

“NAIFA members are dedicated to serving lower and middle-income clients,” Mr. Dougherty said in a statement. “But much of this is out of the advisers' hands.”

The NAIFA survey results somewhat match a similar survey by Fidelity earlier this week.

But Fidelity noted that half of their survey respondents haven't taken any steps to prepare for the DOL rule. Tom Corra, chief operating officer of Fidelity Investments' clearing and custody solutions unit, said many of his clients are actually considering lower cost automated investment management as a way to manage smaller clients.

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