Fee-based RIAs could face considerable disruption to their businesses if the Department of Labor's fiduciary rule stands as written, according to analysts at Fitch Ratings.
Much of the analysis of the potential impact of a uniform fiduciary standard has been geared to estimating the rule's affect on the commission-based revenue streams of broker-dealers.
But the extent of the disclosure requirements proposed in the regulation could present "hidden surprises" to RIAs' fee-based model, according to Matt Noll, a senior director at Fitch and one of the authors of new research note published by the ratings agency.
"Just because you already operate under a fee model doesn't mean you won't be affected by the rule," said Noll. "It's complex regulation and it would require some serious examination of business practices."
Even for RIAs that already operate as fiduciaries, the DOL's proposal "sets a very high bar" for proving advisors are acting in their clients' best interest, he said.
While the proposal does not prohibit commissions on sales of investment products, it does require extensive new disclosures.
RIAs, and broker-dealer reps, would also be required to obtain written affirmations from clients that they fully understand what they are paying in fees and commissions, and that they understand the products they are buying.
That could impact more complicated investment vehicles like annuities, and "burden the sales process and hurt volume," wrote Noll in the note.
Noll and two other analysts at Fitch interviewed their counterparts in the United Kingdom to gauge the impact of a new regulation there that outlawed commissions on the sale of retirement investment products.
While their research found that commission bans have not resulted in "significant curbs to dollar sales" of retirement products, analysts in the UK have seen indications that "middle-market" customers are now less targeted by investment advisors.
