New Fiduciary Rules More Lenient Than Expected

Our initial take on the final version of the Department of Labor fiduciary rule is that there were incremental positive changes for the full-service wealth management firms, but that our previous take on the overall effects of the rule still holds. We continue to believe the prime beneficiaries of the rule will be the discount brokerages, index and exchange-traded product providers, and robo-advisors. The effect on the active asset managers and full-service wealth management firms will be mixed, while certain alternative asset managers and life insurers will be challenged. We are currently maintaining our moat ratings for the affected firms.

Looking more closely at the potential winners, we still expect the rule to push more IRA accounts into fee-based structures, where costs become a much bigger consideration for the advisor or broker dealer, as they are compensated on the total value of the account. We expect this to be more of a boon for the two largest providers of low-cost exchange-traded funds--

We also expect to see a spike in the growth of assets under management being overseen by robo-advisors that rely more heavily on ETFs and other low-cost passive offerings, as the increased compliance costs associated with the new rule shifts the breakpoint at which full-service advisors are willing to take on clients. Publicly traded firms with digital advice offerings include BlackRock,

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