LPL Financial President Dan Arnold may have other worries, but the new fiduciary rule isn't keeping him up at night.
"We believe the impact from the rule will be very manageable for our business," Arnold said at a New York session with LPL investors and stock market analysts who cover the nation's largest independent broker-dealer.
LPL faces some challenges on gross profits as it implements the rule, Arnold acknowledged. But there will also be "growth opportunities," he maintained, adding that the "cost trajectory" of implementing the rule "improves over time."
Sales commissions may decrease as a result of the rule, and commission structure is likely to shift from upfront to trailing payments, Arnold said. The industry is likely to see a "simplification of products," he predicted, with "reasonable compensation" based on benchmarking. But advisers should not expect a "disruption" in their existing trail structure, Arnold maintained.
"Because of the grandfather provisions, we do not have to pivot overnight."
"There may be headwinds at the start of the process," he said, "but we'll see more tailwinds as we proceed."
NEW CASH ACCOUNT OFFERING
LPL will launch a new deposit cash account with FDIC insurance for corporate advisory retirement accounts, Arnold announced. The IBD powerhouse will also look to mutual fund-only brokerage accounts and centrally managed advisory platforms to accelerate growth, he added.
"LPL advisers will be able to differentiate their practice, lower prices and offer more value to the end investor," Arnold said.
LPL was well positioned to benefit from the anticipated migration to a fee-based advisory model from a commission-based brokerage model, Arnold asserted. LPL also expects the requirements of the fiduciary rule to put advisers and assets in motion, he said.
What's more, client assets that are now off LPL's platform, such as those that are directly held by mutual funds, may be put in a position to move onto the firm's platform as a result of the rule, he added.
The IBD expects to implement the requirements of the rule before the first deadline of next April, Arnold said, and will offer clients choices based on the rule's best interest contract exemption.
"The good news is that because of the grandfather provisions, we do not have to pivot overnight," he said.
LOWER COSTS NEXT YEAR
As for the costs, Arnold said higher expenses would be split about evenly between technology and operational upgrades over a two-year period, with the "majority" to be completed this year.
Core general and administrative costs have already been included in the firm's 2016 financial outlook, Arnold said, while implementation costs for 2017 will likely be lower than this year.
Ongoing costs, driven by compliance oversight and the cost of insurance, are expected to be manageable and less than implementation costs, he noted.
In the long term, added Michelle Oroschakoff, LPL's chief risk officer, "We believe our investments in compliance and risk management will reduce our regulatory expenses."
