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DOL Rule – Another Ingredient for ETF Growth

Accelerating Growth: The Department of Labor Conflict of Interest Rule and its impact on the ETF industry | September 2016

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On April 10, 2016 the DOL finalized its Conflict of Interest Rule, which re-defines the term fiduciary for the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code of 1986. This paper will explore the basics of the rule, and look at potential effects on the ETF industry.

In the years since the 2008 financial crisis we have witnessed historic economic, market and regulatory changes on a global level. The rapid flow of regulatory initiatives has been transformational on the financial industry, having touched every aspect from money market fund reform to the way we look at liquidity.

Most recently, the Department of Labor’s Conflict of Interest Rule is re-defining the term “fiduciary” and could profoundly change advisory firms’ business models and advisory strategy. While the rule may initially apply to retirement accounts, the implications will potentiality affect all accounts. Independent broker dealers, RIAs and advisors are currently the main focus in regards to the effect of the DOL Rule, though in reality it will affect the entire industry — from products to distribution to servicing, including the exchange-traded funds (ETFs) marketplace. The fiduciary standard embodied in the DOL Rule is expected to accelerate ETF growth beyond its current trajectory.

Specifically, it is expected that the fiduciary standard will lead advisors and institutions to:

  • Move assets from more expensive active investments to less expensive passive investments, which favor ETFs
  • Motivate plan sponsors to find a way to offer ETFs
  • Add impetus to institutions’ use of ETFs

To help understand the impact of the DOL ruling on advisors’ use of ETFs, BNY Mellon, in conjunction with ETF Trends, conducted a survey of 170 advisors. This paper outlines the survey results, and explores the effects of the evolving ETF industry.

Illustration - Advisors expect their product mix to change

Topics covered in this paper:

  • Foreword (page 3)
  • The Basic Framework of the DOL Final Rule (pages 4-5)
    • DOL’s Final BIC Exemption
    • Streamlined BIC Relief for Level Fee Fiduciaries
  • The DOL Rule and the Evolving ETF Industry (pages 6-10)
    • ETF Growth - The Glacier Did Not Get in the Backyard Overnight
    • DOL Rule – Another Ingredient for ETF Growth
    • ETF Infrastructure – The Backbone of Growth
  • ETF Industry Support – Education and Information Access are Key (pages 11-13)
    • ETF Education
    • Information Access
  • Summary (page 14)


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