WASHINGTON–The Financial Services Institute (FSI) has released a study that suggests rules proposed by the Department of Labor will cost the independent financial services industry and investors nearly $4 billion.
The study, “Economic Consequences of the U.S. Department of Labor’s Proposed New Fiduciary Standard,” was conducted with Oxford Economics and focuses on the economic impact of the Department of Labor’s (DOL) proposed fiduciary rule for retirement advice on the independent financial services industry and investors who rely on independent advice. Its $3.9-billion estimate of total startup costs to implement the rule is early 20 times DOL’s preferred cost estimate.
“This amount does not take into account the cost of investors’ lost access to advice or the ongoing costs of maintaining compliance with the rule,” said FSI in a release. “The evidence presented in the study also suggests that if the rule is implemented, only high-net-worth investors will be able to access and afford professional retirement investment advice.”
Among other findings, according to FSI:
- The proposed rule will result in estimated startup costs ranging from $1.1 million to $16.3 million per firm, depending on firm size.
- BDs and investment advisers would be forced to either substantially change their current business models or navigate the challenging demands of a new “Best Interest Contract Exemption” (BICE).
- The rule will result in less access to advice from financial advisors for small and medium-sized investors. One unintended consequence may be that it will become harder for minority investors with small asset holdings to seek advice from financial advisors.
- The proposed rule will result in industry consolidation likely to force small broker-dealers out of business.
- An expanded potential for systemic risk in the retirement savings market as savers are increasingly pushed into the same set of standardized “low-cost” assets.