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The Cost of Complying with the DOL’s Fiduciary Regulation

A couple of large advisory firms have put a public price tag on the costs of their compliance with the Department of Labor’s (DOL) fiduciary regulation.

The most recent, Principal Financial, announced last week that complying with the DOL’s new fiduciary rule will cost an estimated $1 million a month for the next 18 to 24 months, and between $5 million to $10 million a year afterwards, according to InsuranceNewsNet, citing comments by Principal Financial Group executives.

Ameriprise, which has a national network of approximately 10,000 advisers, incurred a $7 million expense related to “DOL planning and implementation” in the second quarter, according to InvestmentNews, citing a release announcing the company’s quarterly earnings results. Cambridge Investment Research Inc., an independent broker-dealer with approximately 3,000 advisers and an estimated $750 million in revenues for 2016, will spend in excess of $10 million as of the fiduciary rule’s implementation date next April, according to the same report.

Insurers are spending the money to upgrade their information technology systems, restructure products and features, alter fee and commission schedules and implement new training programs to meet the DOL requirements.

Earlier this year Sen. Elizabeth Warren (D-Mass.) expressed concerns to regulators, including Secretary of Labor Thomas Perez and Office of Management and Budget Director Shaun Donovan (whose agency was reviewing the as-yet-unpublished version of the rule submitted by the DOL earlier this year), as well as SEC Chair Mary Jo White, about whether financial services providers — though not referencing any of the firms listed above — violated securities laws by misleading investors by making contradictory statements about the impact of the pending rule on their business practices.

However, a 2015 analysis noted that, while current government and financial industry reports have a high-end annual cost estimate of $1.1 billion, that figure fell well short of Morningstar’s “low-end prohibited transaction revenue estimate” of $2.4 billion. Moreover, it says that the rule’s financial repercussions extend far beyond wealth management firms.