While people are predicting gloom and doom for broker-dealers when the new fiduciary rule goes into effect, there is a certain brand of broker-dealers that aren’t going to be in panic mode.
A few weeks back, I meet a broker-dealer who was certainly far from hitting the panic button as his company prepares for the new rule. Why was he so calm? It helped that he didn’t sell any proprietary products. He figured as long as he papered the process and made sure everything fell under the best interest contract, he would be fine. He was amazed as to how many broker-dealers are just going to close off certain lines of business to customers to qualify under the new rule, but he noted that was a consequence of selling your own product and its going to be very hard to justify that in such a litigious environment.
The broker-dealers who are going to suffer the most are those with large lines of proprietary products such as mutual funds and insurance products. It’s going to be extremely hard to claim in court that your own products were in the best interest of the clients if there are similar products on the market that are a better fit. So, some broker-dealers are calm before the storm because they are only selling other people’s products.
