Three investment advisers who charge fees, commissions and by the hour for their services said on Monday that the recently finalized Labor Department rule on investment advice will not disrupt their businesses.
They said that the DOL regulation, which requires advisers to 401(k) and individual retirement accounts to act in their clients' best interests, does not present compliance difficulties.
“I believe the department's final rule, with the modifications made by DOL — and I salute them for doing what they did — is quite workable,” said Ray Ferrara, chairman and chief executive of ProVise Management Group. “We don't believe there will be significant, upfront ongoing costs.”
The DOL
released the final rule last Wednesday.
Mr. Ferrara, former chairman of the Certified Financial Planner Board of Standards Inc., participated on a conference call sponsored by the Financial Planning Coalition. The group is comprised of the Financial Planning Association, the National Association of Personal Financial Advisors and the CFP board.
(More: Coverage of the DOL rule from every angle)
The FPC has been an advocate for the controversial DOL rule. Supporters, including President Barack Obama, argue that the measure is needed to reduce conflicts of interest for financial advisers that result in high-fee products and eroded returns in retirement accounts.
Critics say the rule is
too complex and would significantly raise liability and compliance costs for brokers, potentially making advice too expensive for investors with modest assets.
Although their firms will have to modify client agreements to include the so-called best-interest contract required by the rule and will have to adjust some policies and procedures, they will be able to absorb the costs.
“We do not anticipate any material change in the pricing of our services or the level of service that we provide to our clients,” said Chris Draughon, director of financial planning at the First Coast Wealth Advisors and president of the Florida FPA.
The planners said that the DOL rule puts into place for retirement accounts a regulatory approach that is similar to the requirements of holding the CFP designation. They have to have a written agreement with clients, disclose conflicts and compensation, and act as fiduciaries.
“The new requirement of putting my clients' interests first will have little impact on how I operate,” said Robert Gerstemeier, president of Gerstemeier Financial Group and former NAPFA chair.
Opponents of the rule assert that it will effectively curb commissions, but the final rule clarifies that commissions are allowed.
Mr. Ferrara's firm charges a fee based on assets under management or commissions, depending on the client.
He says many of his clients represent “middle America,” the group that opponents say could be hurt by the rule.
“ProVise has successfully served middle-class clients under a fiduciary standard for almost 30 years,” Mr. Ferrara said.
Charging a commission can co-exist with
fiduciary duty, according to Mr. Draughon.
“Regardless of our compensation, our obligation is to our clients,” Mr. Draughon said.
Mr. Draughon said that he does not have a minimum AUM threshold for clients, while Mr. Gerstemeier said that he charges by the hour for financial planning services. All three advisers have a mandatory arbitration clause in their advisory contracts and will include such a provision in the DOL best-interest contract.
