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Advisors preparing to dump smaller clients

By Andrew Rickard | April 12 2016 01:31PM

A survey of advisors in the United States has found that about half of them believe they will have to stop dealing with smaller clients once the US Department of Labor’s (DOL) new fiduciary rules are in place.

Industry research group LIMRA asked 1000 advisors who work primarily with individual investors about the implications of the DOL's new fiduciary rule, which will impose a higher standard of care on those who offer retirement planning advice when it comes into force next year. LIMRA says that 55% of retail advisors believe they will have to drop or turn away small investors and half will stop handling small rollovers from retirement plans because the new regulations will require them to spend more time on transactions.

Higher fiduciary standard

LIMRA notes that the higher fiduciary standard will also have an influence over the kinds of products advisors sell. When the DOL rule comes into force, 45% of the advisors surveyed indicated that they will be more sensitive to product fees, and 37% say they will use passively-managed funds more often. In particular, the survey revealed that 1 in 4 of advisors plan to sell fewer annuities, and 1 in 6 will sell annuities with non-qualified assets.

Overall, LIMRA says that once the DOL rule comes into effect, advisors will focus on larger clients rather than help consumers with smaller account balances. "Consistently, Institute research has found that consumers who work with an advisor to plan for retirement have better outcomes," reads the report. "The survey indicates that fewer middle market Americans will have access to professional advice."

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