Unintended consequences.
That's what's keeping broker-dealers awake at night as they consider the implications of new regulations that would require them to live up to the higher fiduciary standards under consideration by the Department of Labor.
"It's actually not about us. We will adopt. We will find a way to make it work. We move on. But it's what the impact might be on the client," Patrick Rieck, who heads the corporate retirement business at Morgan Stanley, said Wednesday.
The concern, he said, is that the regulations will make it more difficult to deliver retirement services, resulting in a "detrimental impact on coverage."
It was a sentiment echoed by all of Rieck's co-panelists at a Center for Due Diligence conference session focusing not just on fiduciary standards, but on regulatory scrutiny of IRA rollovers, proposed mandates to provide participants with better retirement income projections and efforts by states across the country to establish new retirement plans for private-sector employees.
The concerns Rieck expressed were not new. While consumer advocates favor the stricter approach – which would compel brokers to act in a client's best interest – much of the financial lobby is dead-set against them.
Industry groups say the DOL's efforts are a waste, because the fraction of brokers who do take advantage of clients is small. The Securities and Exchange Commission, the states and self-regulatory organizations already police the industry for such conflicts, they say.
"There is no evidence of a crisis, no evidence of a problem," Kenneth Bentsen, president of the Securities Industry and Financial Markets Association, known as SIFMA, Wall Street's largest lobbying group, said this summer.
Regardless, the moderator of Wednesday's CFDD panel, ERISA attorney Fred Reish, said he expected the new fiduciary standard regulation to be finalized before the Obama administration leaves the White House.
"A fiduciary regulation is likely next year," he told the audience.
Kevin Crain, managing director of Integrated Benefits at Bank of America Merrill Lynch, expressed the sort of frustration heard from many in his business.
"Does the client today even think there's an issue?" he asked. "Most investors believe the person they're dealing with is providing that higher standard of care. You don't want to take away choice or impact cost."
