Financial product manufacturers may be making serious adjustments in the wake of the new Department of Labor fiduciary rule.

"The rule may prove to be transformative for certain products and services," said compliance expert Blaine Aikin, executive chairman of fi360, speaking on a panel at SourceMedia's annual In|Vest digital conference in New York on Friday.

For one, "Advisers are more likely to go to fee-based accounts using products with level compensation rather than have compensation tied to what products they offer," Aiken said.

(Bloomberg News)
(Bloomberg News)

Mutual funds with sales loads and non-traded REITs that include variable compensation to advisers such as sales commissions and revenue sharing will require advisers to use the rule's best interest contract exemption Aikin explained in an interview with Financial Planning.


But advisers are unlikely to want to take the BIC exemption, due to its more onerous requirements, he noted.

In time, that means advisers are less likely to offer higher cost, actively managed investment offerings, said Rob Foregger, co-founder and EVP of the enterprise digital advice company NextCapital.

Foregger said he also expects many companies selling 40-Act mutual funds to switch their business model to advice from products.

"I expect a seismic change as product manufacturers will have to adapt to the new rule," he said.


Most RIAs who are fiduciaries will see "relatively little" changes in their business as a result of the new rule, according to Aiken. But transaction-based firms will have to "change their mindset," he said.
"Transaction-based brokers are concerned with profitability and helping their client, but for fiduciaries the optimal outcome for the investor comes first," Aiken said. "Fee-based brokers are going to have to retool and reverse their current thinking."

Asked during the session if IRA rollovers "are dead," Elizabeth Kelly, special assistant to President Obama for economic policy replied that "rollovers aren't dead; they just have to be in the clients' best interest."

However, rollovers will be under "intense scrutiny" in the coming months, Aiken said.

He also threw cold water on the notion that the recent spate of lawsuits challenging the validity of the DoL's fiduciary rule might prevent the rule from taking effect next April.

"The rule is not going away," Aiken said.

Register or login for access to this item and much more

All Financial Planning content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access