SAN ANTONIO – Today's Department of Labor is the most aggressive in years and one of its biggest initiatives – imposing the fiduciary standard on broker-dealers – will flood the market with hundreds, if not thousands, of new RIAs.
So said Fred Reish, a Drinker Biddle attorney and one of the more respected ERISA experts in the country, in a presentation Wednesday, the closing day of the 2013 Center for Due Diligence conference.
The Department of Labor has spent months trying to perfect its proposed fiduciary standard, withdrawing an initial draft earlier this year, leaving some to wonder just when the final rules finally might be issued.
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"We are going to have a new fiduciary investment advice regulation," Reish told the audience. "It will make very small changes. But it will dramatically change investment advice as we know it.
Close observers – and that includes Reish – agree the changes directly affecting 401(k) fiduciaries don't amount to much.
The fallout, however, will be huge for broker-dealers who will be subject to the fiduciary standard for the first time.
As a result, Reish said, many broker-dealers will be setting up fiduciary programs.
"There will be hundreds, if not thousands, of new RIAs in the marketplace competing," he said. "Every Tom, Dick and Harry will be saying they're a fiduciary."
As a consequence, being a fiduciary will become "commoditized."
That, in turn, will force RIAs to rethink how they express their value in the market, he said, with more likely to embrace the 3(38) route so that they can begin to offer investment management services.
Broker-dealers affiliated with a carrrier or mutual fund also will face a tough decision: whether to sever their affiliations to avoid the inherent conflicts of interest prohibited under fiduciary standards.
"It'll be a difficult corporate decision," Reish said, forced upon any broker-dealers that expect to bill themselves as fiduciaries.
Reish said he expect the DOL to issue its revised rules by the end of this year or beginning of 2014. It will then go the Office of Management and Budget, which will have 90 days or so to respond. That will be followed by a comment period of 60-90 days, with the final regulation then sent back to the OMB
"So it may be the end of 2014 or early 2015 before we have a final regulation," he said.
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