Fiduciary rule to leave US mass-market investors stranded, study shows

Transcription

1 Fiduciary rule to leave US mass-market investors stranded, study shows Research reveals seven in 10 US advisors will disengage from mass-market investors as a result of the DOL fiduciary rule. (London, November 2016) The DOL s fiduciary rule could create a significant advice gap as mass-market investors are left out in the cold by financial advisors, according to a recent study. A report by, surveying 552 US financial advisors, found a strong majority (71%) plan to disengage from some mass-market investors because of the DOL rule. On average, these advisors estimate they will no longer service a quarter (25%) of their mass-market clients creating a potential advice gap for low-balance investors. The expected move away from mass-market clients comes amid concerns the fiduciary rule will make advice too costly. The majority (64%) of advisors think the rule will have a largely negative impact on mass-market investors and four in 10 (39%) think financial advice will become too expensive for most investors. The rule, which requires advisors to act in the best interests of clients and disclose potential conflicts of interest, is set to come into effect in April However, it could be subject to revisions or even a rollback under the incoming Trump administration. Opponents of the fiduciary rule argue smaller clients will be hit with unaffordable fees, thereby limiting their access to advice as was the case when similar regulation was introduced in the UK. A previous study revealed UK advisors believed the Retail Distribution Review (RDR) had created an advice gap, with over half (52%) claiming its introduction negatively impacted mass-market investors. The election of Donald Trump introduces a degree of uncertainty over the fiduciary rule, said Craig Phillips, head of International,. However, our research suggests the rule could result in mass-market clients being left out in the cold, creating the prospect of an advice gap in an echo of what happened in the UK when the RDR came into effect. Almost half (45%) of US advisors believe investors would rather have cheaper, non-fiduciary advice than more expensive fiduciary advice in findings that reflect widespread misgivings over the DOL rule. Meanwhile, cost pressures are expected to drive mass-market investors in the US further into the arms of automated advice propositions. An overwhelming majority (94%) of advisors say the fiduciary rule will see those smaller clients orphaned by advisors turn to robo-advice. But the CoreData study also suggests advisors are looking to adopt robo-advice models as complimentary offerings in a bid to retain mass-market investors. Over a third (35%) say they will likely add an automated advice service to their business as a result of the fiduciary rule. Greater adoption of automated advice offerings will likely accelerate the trend toward passive investment strategies. Six in ten (62%) advisors believe the fiduciary rule will lead to an increase in ETF recommendations in retirement accounts. BOSTON - CAPE TOWN - LONDON - MALTA - MANILA - MEXICO CITY - SINGAPORE - SYDNEY 1

2 Key Findings Seven out of ten (71%) financial advisors will look to disengage from at least some mass-market investors due to the fiduciary rule. On average, these advisors estimate they will disengage from a quarter (25%) of their mass-market clients. Two-thirds (64%) of advisors view the impact of the fiduciary rule on mass-market investors as largely negative. And 60% believe the fiduciary rule will have a negative impact on at-retirement clients. An overwhelming majority (94%) of advisors believe smaller clients orphaned by advisors are likely to turn to automated advice due to the DOL rule. But a third (35%) of advisors will likely add an automated advice service to their business because of the fiduciary rule. Six in ten (62%) advisors say they will increase ETF recommendations in their retirement accounts due to the rule. 60% of advisors say they will decrease allocations to non-traded REITs and 57% say they will limit offering variable annuities in retirement accounts due to the fiduciary rule. A majority (58%) of financial advisors who currently receive commission say they will move away from it by 2020 in order to get ahead of potential future regulation. Three in four advisors (74%) think the fiduciary rule will be expanded to non-retirement accounts. In the long-term, 55% of advisors believe commission on retirement accounts will eventually be banned and 24% of this group believe commission on all accounts will be banned. Almost half (45%) of advisors believe investors would rather have cheaper, non-fiduciary advice than more expensive fiduciary advice. Over a third (36%) of advisors plan to hire additional staff as a result of the rule and 86% plan on working more hours per week. Nearly all advisors (95%) see the financial advice industry moving toward a model based on transparency and full disclosure. For further information, please contact Will Roberts at UK on +44 (0) Notes to Editors surveyed 552 US financial advisors in October Data for UK advisors was taken from a July 2015 report which was based on a sample of 982 advisors. The RDR came into effect in the UK in January It aimed to improve service levels and transparency in the financial advice industry and increase the professional standards of investment advisors. Under the regulation, financial advisors were required to introduce fee-based models and were banned from earning commission from fund companies in return for selling or recommending investment products. They also had to offer either "independent" or "restricted" advice and explain the difference to clients. BOSTON - CAPE TOWN - LONDON - MALTA - MANILA - MEXICO CITY - SINGAPORE - SYDNEY 2

3 About UK is the London-based arm of a broader global specialist financial services research and strategy consultancy. understands the boundaries of research are limitless and with a thirst for new research capabilities and driven by client demand; the group has expanded over the past few years into the Americas, Africa, Asia and Europe. The London division is part of the CoreData Group and has operations in Australia, the United Kingdom, the United States of America, Malta, Mexico, Singapore, South Africa and the Philippines. The group s expansion means has the capabilities and expertise to conduct syndicated and bespoke research projects on six different continents, while still maintaining the high level of technical insight and professionalism our repeat clients demand. With a primary focus on financial services provides clients with both bespoke and syndicated research services through a variety of data collection strategies and methodologies, along with consulting and research database hosting and outsourcing services. provides both business-to-business and business-to-consumer research, while the group s offering includes market intelligence, guidance on strategic positioning, methods for developing new business, advice on operational marketing and other consulting services. prides itself in identifying market trends at the earliest opportunity and formulating insightful quantifiable research that clients can use to help them stay ahead of the market and better meet the day-to-day challenges facing their businesses. BOSTON - CAPE TOWN - LONDON - MALTA - MANILA - MEXICO CITY - SINGAPORE - SYDNEY 3

4 Our focus is on bringing deep market knowledge to research and strategy development. The group's research is not just about information and data but at providing insight so clients can develop strategies that work. The team is a complimentary blend of experienced financial services, research, marketing and media professionals, who together combine their years of industry experience with primary research to bring perspective to existing market conditions and evolving trends. has developed a number of syndicated benchmark proprietary indexes across a broad range of business areas within the financial services industry. Experts in financial services research Deep understanding of industry issues and business trends In-house proprietary industry benchmark data Industry leading research methodologies Rolling benchmarks The team understands the demand and service aspects of the financial services market. The group conducts regular research in banking, mortgages, retail saving, pensions, asset management and the financial advisory sector. It is continuously in the market through a mixture of constant researching, polling and mystery shopping and provides in-depth research at low cost and rapid execution. The group builds a picture of a client s market from hard data which allows them to make efficient decisions which will have the biggest impact for the least spend. BOSTON - CAPE TOWN - LONDON - MALTA - MANILA - MEXICO CITY - SINGAPORE - SYDNEY 4

5 Headquarters Australia CoreData Pty Limited Suite 2, Level 11, 66 Hunter St Sydney, NSW 2000 Tel: info_aus@coredataresearch.com South Africa 11 Glenlyn 5 The Glen Sea Point, Cape Town, info_sa@coredataresearch.com Singapore 45 Mt. Sinai Rise Beaverton Court info_sg@coredataresearch.com UK Ltd 6 Foster Lane London EC2V 6HH Tel: +44 (0) info_uk@coredataresearch.com Malta 23, Triq San Injazju ta Loyola Naxxar, Malta NXR 2041 Tel: info_emea@coredataresearch.com Philippines Services Inc. Unit E-1608 Philippine Stock Exchange Centre Exchange Road, Ortigas, Pasig City, 1605 Tel: info_ph@coredataresearch.com US LLC 15 Court Square, #450 Boston, Tel: +1 (857) info_us@coredataresearch.com Mexico Cordoba 53, Departamento 202 Colonia Roma Norte Distrito Federal, Mexico, Tel: info_latam@coredataresearch.com BOSTON - CAPE TOWN - LONDON - MALTA - MANILA - MEXICO CITY - SINGAPORE - SYDNEY 5