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Retirement 2016 – Winners and Losers Based upon the Proposed DOL Regulation

DOLAs with most Regulatory change there are Winners and Losers.  The revisions to the conflict of interest rules being proposed by the Department of Labor create some new winners and losers according to Morningstar Analyst, Stephen Ellis.  The existing business models of insurance based 401(k) products, broker dealer models and investment manufacturers may all require overhauls on how their 401(k) business is structured and delivered.

However, the need to restructure business models and defining new winners and losers may stop short of defining the entire impact of the proposed regulation.  As described by Mr. Ellis, the winners are likely to be the Robo-advisors, the full-service Broker Dealers (such as wirehouses), retail brokers and designers and distributors of passive investment strategies for use within 401(k)plans.  Some winners are defined as such due to their tendency to be the “low-cost” provider.  Low Cost is more than a buzzword as fiduciary lawsuits have repeatedly placed a large emphasis on fees (and not always value). Robo-advisors and passive investment strategies deliver their services at a fee less than traditional full-service advisors and active management strategies.

Losers in the proposed fiduciary standard of care regulation are presented as the life insurance industry and the financial sector overall.

Mr. Ellis states that based upon Morningstar data, the true loss to the Financial Services Industry, if the regulation is implemented as proposed, is over twice what was originally reported as being $1.1 billion dollars. See article of DOL rule change winners and losers.

The financial impact is a significant factor – but the impact upon plan participants could be much greater since 401(k)Plan participants and IRA holders could lose access to the only source of financial advice that they have known for their working career.  Such a loss is real although it is much more difficult to quantify when working exclusively with raw mutual fund performance comparisons.

Steff Chalk

Steff Chalk

Managing Editor at 401kTV
Steff C. Chalk is Executive Director of The Retirement Advisor University, a collaboration with UCLA Anderson School of Management Executive Education. Steff also serves as Executive Director of The Plan Sponsor University and is current faculty of The Retirement Adviser University.
Steff Chalk
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