A new regulation raising standards for investment managers entered into force last week in the US, protecting investors and worrying active assets managers.
Drawn up by the Obama Administration, this new fiduciary rule applies to the $16tn retirement investment market and is expected to spell the end of financial advisers recommending expensive funds to clients in return for large kickbacks. It could also bolster cheaper passive fund managers that track market indices. Indeed, active managers who rely on brokers and advisors will be negatively impacted by the new rule. They will have to lower theirs fees to compete with lower-fees investment solutions (such as robo-investors). The new rule provides that advisers will have to consider how appropriate an investment is for their clients and will have to weigh up the effects of fees.
The Institute for the Fiduciary Standard which lobbied for the introduction of this regulation says that this new regulation will improve standards in the finance industry with regards to conflicts of interests and costs and will help rebuild the sector’s post-financial crisis reputation. Personal Capital, the US robo-investor, estimates that investors who pay unnecessary fees and receive conflicted financial advice end up losing 30% of their assets stashed away for their retirement.
For its part, the fund industry, who fought this rule, warns that “far from saving investors a lot of money, it is likely going to cost investors a lot more money”. The Investment Company Institute believes that this decrease in fees will result in fewer incentives for financial advisers to work in their clients’ best interests. The retirement industry predicts that consumers will be left without financial advice and that as a consequence the level of savings retirement plans could be impacted.
Although this fiduciary rule entered into force last week, the US Secretary of Labor declared that the rule could be amended in the coming months.
Read the Financial Times article here