The new Department of Labor’s retirement fiduciary proposal has the potential to drive substantial assets into advisory program, according to industry sources. The new DOL proposal would increase the types of firms and individuals that would be required to a ‘best interest standard’ when dealing with retirement accounts and plans. As it now is written, the proposals would—if they agreed to disclose conflicts of interest and stated they would act in the their clients’ best interest—allow advisors serving IRAs and 401k plans to continue being compensated on a commission structure.

The increased compliance and litigation risk, however, could cause brokerages and individual advisors to move IRA accounts to advisory platforms, according to the president of the Money Management Institute, an industry group that represents the managed accounts industry.
Mark Costley, an attorney with Ballard Spahr, feels it may be premature to speculate what effect the DOL proposal may have until the final rule is adopted.

"The first step is the firms themselves have to analyze this and decide on a firm-wide basis what are the paths that make sense," Costley says. "One of the things that [brokerage firms] have to look at are what systems or structures they would have to build to be able to implement a compliance regime with the new requirements."

If enacted as proposed, the compliance and litigation risks for firms and advisors serving IRA brokerage accounts likely would increase.

"Now the risks have become greater if you’re going to operate under the new best interest contract exemption," Costley says. "It’s going to require a very serious look by the wirehouses."

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