While many broker-dealers are moving to comply with the Department of Labor's new fiduciary rule, at least one CEO doesn't expect the second phase of the rule to be implemented on schedule — if at all.
Speaking to analysts during a second-quarter earnings call Monday,
Stifel CEO Ron Kruszewski said he believes the January phase-two implementation "will be delayed."
During an interview following the
earnings call, Mr. Kruszewski cited "further study" of the DOL rule directed by the
Trump Administration and consideration of a fiduciary standard by the Securities and Exchange Commission.
The first phase of implementation, originally scheduled for April 10, was postponed until June 9.
"There are a number of things that require further study, and there are lots of details that get rolled in that probably don't have to be done now that we're partially implemented," Mr. Kruszewski said. "I believe they're not going to take the next step until they complete the president's memorandum study. It doesn't make sense to double down on this rule, versus delaying it. It may never take effect."
On June 25, Mr. Kruszewski sent a letter to Labor Secretary Alex Acosta and SEC Chairman Jay Clayton proposing a solution to the "politically-charged issues that you both inherited."
Part of Mr. Kruszewski's proposal is a "single standard of care applicable to both brokerage and advisory accounts, while recognizing the inherent differences the constructs of brokerage and advisory relationships."
The "impartial conduct standards," as detailed by Mr. Kruszewski, allows for both asset-based and commission-based advice by both advisers and brokers operating under both the
Investment Company Act of 1940 and the
Securities Exchange Act of 1934.
Finding a way for brokers and advisers to thrive under an evolving regulatory framework is a potential bottom-line issue for companies such as Stifel.
According to the company's earnings report, brokerage revenues during the second quarter were 13.1% lower than the same quarter last year, and 8.3% lower than the first quarter of this year.
Revenue from advisory fees, meanwhile, were up 23.6% from the same quarter a year ago, and up 55.8% from the first quarter of this year.
Steven Chubak, senior equity analyst at Numora Instinet, acknowledged that the brokerage side of the business has been held down by lower volatility, but said the DOL rule has been driving more accounts toward advisory relationships.
"The DOL rule has been a favorable trend, which I think has served Stifel quite well," Mr. Chubak said. "There has been a conversion to advisory accounts across the industry, and those assets tend to be stickier and the revenue stream tends to be more predictable."
Mr. Kruszewski said at Stifel there hasn't been any formal policy or even encouragement to move assets from brokerage to advisory.
"It's one of the things that has happened across the industry as a result of the DOL rule; people are shifting assets out of brokerage and into advisory accounts," he said. "I don't always think it's in the best interest of clients to go advisory."
Stifel, which has nearly doubled its number of financial advisers over the past 10 years to 2,277, has slowed its recruiting efforts in the wake of the uncertainty surrounding the DOL rule, Mr. Kruszewski said.
"During this uncertain time, we have been less aggressive about recruiting," he said.
Mr. Chubak concurs, calling it another reality of the DOL rule's cloud of uncertainty.
"The DOL rule is driving certain behavioral trends, and it is certainly impacting Stifel's appetite to recruit more aggressively," he said.
Regarding Mr. Kruszewski's prediction that the next phase of the DOL rule will not be implemented on schedule in January, Mr. Chubak also sees that as a likely scenario.
"Based on everything we have seen, it certainly feels as though a delay is likely," he said.
