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Why NAPFA Insists DOL Rule Isn’t Driving Consolidation

September 22, 2017

Contrary to what opponents of the Department of Labor’s fiduciary rule say, the new regulation is not pushing smaller firms to consolidate, executives at the National Association of Personal Financial Advisors argue.

Critics of the rule have said smaller firms could go out of business or be forced to join larger companies due to the additional compliance costs required to comply with the rule, which purports to force retirement account advisors to put clients’ interests first and went into partial effect in June. But Geoffrey Brown, NAPFA’s CEO, tells Financial Advisor magazine the industry was consolidating even before the rule went into effect.

Advice firms have been consolidating to scale up, he says. Consolidation is also used as a way to ensure succession for the firm as advisors retire. There’s also scant evidence smaller firms are going away. Scott Beaudin, chair of NAPFA’s board of directors, tells Financial Advisor magazine 65% of the industry is still made up of solo practitioners — a ratio that hasn’t changed much in recent years.

Opponents of the rule shouldn’t hope it’s going away, because undoing the provisions already implemented would be difficult, Beaudin says. And while critics complain about the burden of compliance with the rule, “firms seem to be on track to comply,” Brown tells Financial Advisor magazine.

Scott Beaudin

The DOL, meanwhile, has already given the industry leeway on complying with the rule. This summer, the agency postponed the final compliance deadline from January 2018 to July 2019. The agency has also said it will not enforce a provision of the rule barring retirement account advisors from requiring clients waive their right to class-action suits.

By Alex Padalka
  • To read the Financial Advisor Magazine article cited in this story, click here.