In its first comment letter to the Labor Department on the substance of the agency's fiduciary rule, Morningstar explains its support for the rule but offers an alternative to the Best Interest Contract Exemption (BICE) and enforcement by way of class action lawsuits.
The letter responds to the latest request from the Department for public comment on the rule, whose implementation has been delayed for 60 days, until June 9.
— (Related on ThinkAdvisor: DOL Files to Delay Fiduciary Rule)
The agency is seeking comment on issues raised by a presidential memorandum including whether the rule will reduce access to certain retirement savings offerings and advice, disrupt the retirement services industry in ways that could hurt investors and retirees, or increase litigation and the prices investors and retirees pay for retirement services. The comment period ends Monday, April 17.
"The early evidence suggests the rule will be positive for ordinary retirement investors," writes Aron Szapiro, director of policy research at Morningstar and author of the firm's comment letter to the DOL.
— (Related on ThinkAdvisor: Why a Diluted Fiduciary Rule Is Bad for Advisors: Betterment, CFP Board)
Among the benefits for investors, according to Morningstar, are:
- Lower costs for wealth management as firms move from a commission-based to fee-based model, which reduce potential conflicts of interest for advisors
- Cheaper investment products as mutual funds add new share classes such as T shares, which typically cost half the price of current load fund shares, and as advisors focus more on low-cost ETFs and index funds and less on more expensive actively managed funds
- More digital advice solutions, which fill "the gap between no-frills discount brokerages and full-service wealth managers"
Morningstar refutes the argument that the rule will shortchange small investors because fee-based advisors will deem their assets to be too small to be worth their time. Instead, it anticipates that those investors will receive advice through a digital channel from their current advisory firm or a different one.
— (Related on ThinkAdvisor: What's Next for DOL Fiduciary Rule)
An estimated $250 billion to $600 billion of assets could eventually shift from full-service wealth management firms to robo or hybrid advisors, which use both digital and human advice, according to Morningstar.
