Morningstar analyst Stephen Ellis has taken a close look at the costs the financial services industry will have to cover and the adjustments it will make if — or most likely when — the proposed Department of Labor fiduciary standard goes into effect in 2016. Overall, Ellis says in an online article, the new rules are likely to impact some $3 trillion of client assets and $19 billion of revenue at full-service wealth management firms.
"We assess that the U.S. Department of Labor's proposed conflict-of-interest, or fiduciary standard, rule could drastically alter the profits and business models of investment product manufacturers like BlackRock and wealth-management firms like Morgan Stanley serving retirement accounts," explained Morningstar's director of financial-services equity research.
Ellis says that the business analysts and government researchers, who have put a $1.1 billion price tag on what the overall industry will lose in business "are vastly underestimating the rule's potential impact on the financial sector." His team's low-end estimate of transaction revenue prohibited under the fiduciary standard, "is more than double that at $2.4 billion," he states, relying on Morningstar data.
Full-service wealth managers, such as the wirehouse broker-dealers (Morgan Stanley, Merrill Lynch, Wells Fargo and UBS) may be able to convert commission-based IRAs to fee-based IRAs to avoid the additional compliance costs, according to Ellis. "As fee-based accounts can have a revenue yield upwards of 60% higher than commission-based, this could translate to as much as an additional $13 billion of revenue for the industry," the analyst said.
