There might be a lot of concern over the Department of Labor's proposed conflict of interest rule, but not for Cerulli, which sees it as offering the potential for innovation within the industry.
The consultant believes that the rule will "force a period of product and platform innovation" in the U.S. even as it compels firms to change the way they conduct business.
Recommended For You
Large broker/dealers, according to the first-quarter 2016 report "The Cerulli Edge—Retirement Edition," will use developing technology to serve smaller accounts on a flat-fee basis. In addition, insurance companies will be compelled to lower variable annuity expenses and commissions to be in line with other financial products.
"The true impact of the DOL's proposed Conflict of Interest Rule may not be immediately felt, but will lead to a period of product and platform innovation at [broker-dealers] and manufacturers," Bing Waldert, managing director at Cerulli, wrote in the report.
Waldert added, "The primary concern of the DOL's proposal is to expand the definition of fiduciary to cover more instances of providing advice. This expansion, in turn, is designed to protect consumers from sales practices that may be tainted by a conflict of interest."
In addition, Waldert wrote that the DOL's April 2015 proposal creates a new type of prohibited transaction exemption (PTE), referred to as the Best Interest Contract Exemption (BICE). This is a contract that must be provided to a potential client by the provider of investment advice.
In the contract, the financial institution must disclose any variable compensation that the advisor receives for the advice and resultant product sale, and comparative examples of compensation they would have received for other products.
"Cerulli expects there will be unexpected changes to the retirement and wealth management industries, and, to a degree, this cultural evolution is what the proposed rule is hoping to effect," Waldert concluded.
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.