Large brokerage firms typically offer thousands of mutual funds to clients. But compliance demands of the fiduciary rule, which began to take effect in June and requires stewards of tax-advantaged retirement savings to act in clients’ best interests rather than their own, are causing some firms to review their offerings, the Wall Street Journal reported today. Under the Obama-era regulation, which aims to eliminate conflicted advice that can arise based on incentives to sell financial products, those offering financial advice to retirement savers may earn commissions and compensation that might give them an incentive to recommend one product over another, but must do so under an exemption. For advisers who use the exemption, any fees must be level with similar investment products or services. That has put mutual funds, with their varying share classes and costs, under the spotlight. Advocates of the rule say weeding out high-cost or risky funds would benefit investors. But some managers fear the fund review will cause sales of their products to suffer and that fund expenses may be used as the key metric in the process, while financial advisers worry that funds they’ve used in clients’ portfolios for years will be discontinued.
