LPL Gears Up For DOL Fiduciary Rule
January 29, 2016 by EVAN SIMONOFF
At a time when some broker-dealers are vowing to fight the Department of Labor’s pending fiduciary rule, LPL Financial is re-engineering its operations to prepare for it.
Over the last four years, the nation’s largest independent broker-dealer has initiated major investments of human capital in the risk management side of its business, according to Dan Arnold, president and chief operating officer. While some broker-dealers hope that a new administration could rewrite the rule or expunge it entirely in 2017, LPL isn’t betting on it.
Arnold did not comment about the political aspect of the rule. But he did say that whatever happens in Washington, LPL only expects regulatory scrutiny to increase. “We have a new regulator in our industry,” he says.
Indeed, the ERISA law and regulations created in 1975 gave the DOL legal authority to oversee and regulate corporate pension funds. As the nation’s retirement savings system migrated from defined benefit to defined contribution plans, the DOL took it upon itself to follow the money, so to speak, and regulate IRAs and 401(k) plans.
Some people question whether the DOL is overstepping the legal authority Congress granted it, but LPL executives are reasoning that it makes more sense to adapt to change rather than fight it. After all, the firm has $120 billion in IRAs and other retirement assets.
“Regulatory scrutiny will only trend upwards,” Arnold says. In fact, LPL was one of the few independent broker-dealers to advocate in favor of a fiduciary rule, even if the firm voiced concerns and caveats. Executives at Raymond James Financial also indicated they were leaning in favor of the rule, albeit with many of the same concerns.
Arnold still worries there may be unintended consequences if the rule is too draconian. “We want to maintain choice,” he says, adding that the firm indicated it would be a mistake to ban commission-based products from qualified plans. Last year, LPL eliminated custodial fees for these accounts and offered centrally managed investment solutions at lower costs for advisors to pass on to clients.
Though the fine print and details of the new rule have yet to be released, Arnold believes that it could create opportunities for broker-dealers and advisors who get out in front of the rule. “How we support and help people prepare for retirement” is an important social issue, he says.
It remains to be seen how the rule would affect popular retirement products like variable annuities. Some think it could spark a move away from variable annuities toward fixed index annuities, the latter of which would not fall under the purview of the DOL’s rule.
Arnold says variable annuities are a viable retirement vehicle and hopes they remain an option for advisors. He cited two relatives, a husband who disliked and criticized the product and a wife who owned a variable annuity. In 2009, the husband’s criticism went silent.
If they remain an option, commissions may need to be reduced or leveled.
