Impact of the new DOL rules on asset and wealth management industry | HCLTech

Impact of the new DOL rules on asset and wealth management industry
May 10, 2017

The new fiduciary rules published by the US Department of Labour (DoL) in April 2016 will change the way asset and wealth managers deal with and advise their clients to subscribe to IRA (Individual Retirement Accounts) and pension plans/ defined benefit plans. The new rules further expand on the definition of ‘investment advice’ or ‘investment recommendation’ and exemptions not violating the ‘best interest contract’ standards.

The asset and industry will need to comply with the new regulation, starting April 10, 2017 and be fully compliant with the BIC exemptions by January 1, 2018. This articles tries to highlight the new set of business and operational pain points arising from these new rules and how they will impact asset management and asset wealth management.

The new rules are designed to be investor-centric, further improving the delivery of a helpful and positive investment outcome. On the other hand, for service providers it would increase the cost of compliance and realign business models.

Here’s an outlook of how the key stakeholders will be affected by the new rules:


  • Improve customer focus and investment transparency through unbiased product recommendation and advice
  • Potential use of new or additional platforms – more DIY and Robo-advisory platforms may be made available
  • Account holders moving from fee based accounts may have to spend more on advice
  • Likely restrictions on advice options and rise in minimum dollars required for account management


  • Increase in fee-based client relationship
  • Change in advisor-client engagement model
  • Relook change in revenue and compensation structure
  • Educate and clarify clients about the changing requirements of the advisor-client relationship
  • Adapt to ERISA fiduciary standard or BICE process changes

Broker-Dealer Firms:

  • Increase in infrastructure cost to comply with new rules
  • Firms may consider consolidating and developing common platform to reduce cost burden
  • Possible realignment of business to support firms, which provide broad range of investment services and/or low cost products
  • Invest in systems to monitor and manage legal risks
  • Look at alternatives to generate revenues other than prohibited commissions
  • Adapt to ERISA fiduciary standard or BICE process changes

Asset Managers:

  • Provide support for investor education and advise consultation
  • Reinforce relationships with partner firms to sustain business
  • Pressure on margins to comply with new rules

The key takeaways from the final rules are:

  1. Recommendation for any product to clients must adhere to the best interest contract standards. This includes sale of variable and fixed indexed annuity products.
  2. The DOL rules have provided more clarity with examples to differentiate investment advice and investor education.
  3. Option for existing contracts for BIC compliance exemption is made available.
  4. The suggested fee disclosure clause has been dropped yet upon request compensation; fees, and other must be made available.
  5. Investment suggestions/ recommendation provided to independent fiduciaries does not come under the purview of investment advice.
  6. A new ‘level fee fiduciary’ has been introduced related to advisory or investment management/ asset wealth management services.
  7. Changes from proposed rules lessen documentation and disclosure requirements.
  8. New processes and technology to support required disclosures and documentation expectations will need to be developed.
  9. The development of new disclosures, training, and processes, along with supporting technology, will be required.
  10. Grandfathering provision allows brokers to continue receiving compensation from previously sold products and exempts brokers from complying with new rules.

Impact on wealth managers

  • The new rules permit class actions lawsuits against financial institutions with no limited liability.
  • Firms may leverage BIC exemptions permitted as per the final rules.
  • Wealth management services providers to look at leveraging technology/platform solutions to reduce cost and compliance risk.
  • Evaluate changes to operational functions and cost required in order to leverage the allowed exemptions as opposed to adopting a different business model.
  • Look at creating new client segment for those who may be eligible for the level fee fiduciary provision of BIC exemption.
  • Evaluate use and impact of using platforms to identify new opportunities.

Impact on asset managers

  • Asset managers may move further from active to passive products as high fee products might not help in creating value.
  • Though there are no restrictions on product offerings, "best interest standard" will force both intermediaries and product manufacturers to reconsider the performance-fee equation.
  • Evaluate current fee arrangements, shares classes, related disclosures, and payment processes for asset management to determine whether changes are required to comply with final rule.
  • Many small asset management firms may find it easier to move into intermediary platforms if they have high performing products at low fees compared to products from established players.
  • Complete a strategic review of current businesses to understand the impact of the final rule. Evaluate whether current products may be sold to institutional fiduciaries without modification.


Get HCLTech Insights and Updates delivered to your inbox