We anticipate that the U.S. Department of Labor's fiduciary rule will have significant consequences throughout the financial sector. Despite discussions with advisors, analysts, and financial institutions, there remain numerous questions about the rule's implications and the steps companies can take to prepare for emerging opportunities or minimize potential negative impacts.
As a result, we believe that wealth management firms must increasingly demonstrate why their recommendations are in the best interest of clients and that financial product makers must ensure that their offerings align with the new fiduciary reality. To address these issues, we have compiled a list of common questions and provided clear answers in our signature user-friendly Interlaken Advisors style.
For a more comprehensive analysis of the financial and strategic implications of the Department of Labor's fiduciary rule on financial industries and companies, we encourage you to request our reports: "The U.S. Department of Labor's Fiduciary Rule for Advisors Could Reshape the Financial Sector" and "Final Department of Labor Fiduciary Rule's Effects Are Substantial." Our reports delve into quantifying the assets affected, revenue impact, potential compression in operating margins, lessons to be learned from other countries that have passed similar rules, accelerating sector trends, and companies that are positively or negatively exposed to the rule.
Key takeaways from our analysis include the expectation that wealth management firms will need to determine, demonstrate, and document why their recommendations are in clients' best interests. To mitigate fiduciary risks, firms are revamping their financial product offerings and may use more third-party investment-management services. While the Department of Labor's jurisdiction primarily covers tax-qualified accounts, we believe that the rule will have secondary effects on taxable accounts and that fiduciary-like obligations will eventually extend to all advised accounts.
Although high-fee, complex products may still have a place in client portfolios, the justification bar is now higher and may require a more comprehensive view. The Department of Labor's fiduciary rule also affects Registered Investment Advisors and their representatives, particularly with regards to substantiating IRA rollovers.
Nothing herein is intended to be investment advice. Investment in the stock market involves risk of loss. Past performance is no guarantee of future returns.