Assuming that the U.S. Department of Labor’s (DOL) fiduciary rule comes into effect as scheduled next year, the industry’s small brokerage firms will face intensified consolidation pressure, says research firm, Cerulli Associates.
The Boston-based firm says that boutique brokers will likely be among the industry sectors that are most affected by the rule. In particular, small firms that lack scale would be at “high risk” under a new fiduciary standard, it suggests.
“It is likely that some of these boutique firms will be unable to support new regulatory costs, resulting in an increase in firm consolidations,” said Kenton Shirk, associate director at Cerulli. “Smaller broker/dealers may be acquired by larger ones, or choose to combine operations, or affiliate… with an independent firm to realize cost synergies.”
From the advisor’s point of view, Cerulli says that reducing costs, decreasing business risk, and enhancing productivity remain the main focuses ahead of the rule’s implementation. “The rule favours fee-based business, so the majority of advisors surveyed plan to increase its use in their practices,” said Shirk.
Additionally, Cerulli says that firms’ technology is becoming an increasingly important factor for advisors, “as fewer advisors serve fewer, wealthier clients with the expectation of highly productive and integrated systems that are capable of delivering more sophisticated levels of client service.”
In Canada, securities regulators are contemplating their own set of reforms to client-advisor relationships, including the possible introduction of a “best interest” conduct standard in certain provinces.