ETFs To Gain?
Many in this industry have projected the big beneficiary of this rule to be ETFs—the low-cost, passive, easy-to-understand, cheap-to-own products. MarketWatch said the ETF market could grow to $10 trillion by 2020—that’s more than three times the size it is today.
There’s no question that fee compression in the ETF space, transparency, ease of trade and tax advantages all suggest ETFs are well-placed to gain assets in a world where investor interests trump all else.
But some say it may be too soon to be making that prediction. For starters, cheap isn’t always best when it comes to meeting investor needs. There are cases where a low-cost, passive ETF might not fit a client’s goals.
The DOL is certainly not calling advisors to dive into ETFs. The rule does not specify what products best meet the fiduciary standard.
“There are criteria when it comes to product and fees, but they are not prescriptive from DOL,” Boms said. “The DOL is not saying, ‘Here’s the maximum fee you can assess,’ and it’s not telling advisors what steps to take. This is where the uncertainty over what ‘good faith’ means comes into play.”
Rule In The Making
It’s also unclear whether the fiduciary rule will last in perpetuity. The DOL is still welcoming feedback from advisors, firms and investors as it shapes the rule going forward.
“There could be other iterations of this rule,” noted Boms. “There are a lot of moving pieces still at play that compound the uncertainty of what the fiduciary rule looks like one, five, 10 years from now. We just don’t know. “
Contact Cinthia Murphy at [email protected]