: On April 6, 2016, The U.S. Department Of Labor (Dol)

906 WordsMar 10, 20174 Pages
: On April 6, 2016, the U.S. Department of Labor (DOL) issued its final rule expanding the definition of an “investment advice fiduciary” under the Employee Retirement Income Security Act of 1974 (ERISA). The rule is intended to prevent financial advisors (FAs) from putting their own interests of earning high commissions and fees over their clients’ interests of obtaining the best investment advice for their retirement accounts. This brings a windfall of changes to how retirement plans and individual retirement accounts (IRAs) will be regulated, and has a significant impact on financial institutions. As a wholly-owned subsidiary of Raymond James and an investment management firm, Eagle Asset Management is particularly vulnerable to these…show more content…
o Disadvantages: Requires more extensive operational changes. Exposes firms to BIC-related class-action lawsuits. o Examples: Morgan Stanley, Raymond James, LPL, Wells Fargo. Effects of the Rule: • Firms with sustainable competitive advantages will retain and attract assets o For example, firms that produce low-cost passive products, such as Vanguard or BlackRock’s iShares, will benefit from the DOL rule and the industry trend towards fee consciousness. Firms with this kind of economic moat are the most likely to make a successful transition in a post-DOL world. • Broker-dealers will step away from serving retirement investors o This is extremely unlikely as there is nearly $16 trillion in private pension plans and IRAs as of 2015. Instead, FAs may choose to defer pension plan advice to an in-house retirement plan expert or work with third party plan advisors to avoid the training and compliance costs of adhering to the enhanced fiduciary standard. • BIC-related class-action lawsuits will rise o Long-term class-action lawsuit settlements are expected to cost financial institutions an estimated $70-$150 million annually, with near-term settlements being even greater. These lawsuits will focus on systemic breaches, rather than exceptions, of prudent policies and procedures that encourage behavior not in the clients’ best interests. For most firms, the potential cost of class-action litigation using the full BICE will cost less than the cost of losing FAs and clients by

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