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Thursday, April 7, 2016

When Digesting the Fiduciary Reg, Watch the Distributors

Reported by Neil Anderson, Managing Editor

As you're contemplating the new fiduciary regulation, keep an eye on your distribution partners and watch out for fee pressure and passive.

Todd Rosenbluth
S&P Global Market Intelligence
Director of ETF/Mutual Fund Research
Yesterday the U.S. Department of Labor (DoL) handed down its final, revised "conflict of interest" rule for the retirement plan industry, which clocks in at a whopping 1,418 pages in total when you count the reg itself, the related exemptions and exemption amendments, and the regulatory impact analysis. For fundsters not yet ready to make that kind of commitment to some dry reading material, here are some food-for-thought quick takes on what the reg means for the mutual fund industry.

Todd Rosenbluth, director of ETF and mutual fund research at S&P Global Market Intelligence, argues that the reg is going to contribute to the continued rise of passive investments, ETFs, and no-load funds. Funds that are higher cost, with trailing loads, "may no longer meet this new higher level of fiduciary standard" because figuring out the "best interest of clients is often going to include a cost discussion," Rosenbluth says.

"Expensive funds that have a below average track record may no longer be held within a client portfolio," Rosenbluth tells MFWire "An advisor may no longer have the patience for something that they previously did."

"This is going to negatively impact active managers, particularly those that have higher cost products," Rosenbluth adds. "[The regulation] is less onerous than it could have been ... but that's at the margin. This is still a long-term favorable move towards passive strategies."

Cindy Zarker, director of relationship development at FUSE Research Network, says that "fund firms are really going to have to digest the rule, especially smaller and mid-size firms."

"They've been waiting to see a final rule until they really delve into it and to some degree waiting to see what broker-dealers do," Zarker tells MFWire. "Most firms have formed some sort of group to look at the rule and see what they need to put into place ... Now that they have a final rule they can start to really work through it."

"To some degree it's all dependent on how the distributors react," Zarker adds.  

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