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BDs Get Picky About Third-Party Asset Managers

January 12, 2017

While the fate of the Department of Labor’s fiduciary rule remains unknown, broker-dealers are getting choosier about who they use as their third-party asset managers, Greg Luken writes on WealthManagement.com.

Primarily, broker-dealers want to simplify their operations with an eye to the expected expansion of compliance and regulatory requirements as a result of the rule, according to Luken, founder and CEO of Luken Investment Analytics, a quantitative research and asset management firm.

Scheduled to go into effect in April, the DOL’s fiduciary rule — if it’s not changed or repealed in a GOP-controlled White House and Congress — will require retirement brokers to put clients’ interests first and provide proof that their recommendations adhered to a fiduciary – rather than a suitability – standard.

More choice alone will not be enough for financial advisors, Luken writes. They’ll be looking for true differentiation among the outside asset managers they work with.

In addition, advisors will be seeking asset managers that are flexible when it comes to changes in the risk profiles of their underlying investments and equity-to-fixed income ratios, says Luken.

Third-party asset managers will also need to be able to provide customization for individual clients and be able to scale it to appeal to broker-dealers in light of the DOL rule, he writes.

While President-elect Donald Trump has yet to take a stance on the fiduciary rule, one of his campaign advisors who’s now part of the presidential transition team has insisted continuously that the regulation should be repealed.

Various influential GOP lawmakers have urged Trump to kill the rule as well. The rule also faces several court challenges launched long before Trump’s win, although the DOL has scored three legal victories against its opponents already.

By Alex Padalka
  • To read the WealthManagement.com article cited in this story, click here.