New Advisor Regulatory Burden Will Actually Be "Modest," Analysts Say

Thursday, May 26, 2011 06:42
New Advisor Regulatory Burden Will Actually Be

Despite all the angst out there, sell side analysts at Keefe Bruyette & Woods say the cost of looming regulation for the industry will be "incremental" at worst and that fears are "overblown."

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In particular, the KBW research department now believes that current proposals to put a ceiling on 12b-1 distribution fees on mutual funds will have a negligible effect on advisors' bottom lines.


Based on the dwindling amount of sales of products carrying high 12b-1 fees, market forces may have already taken care of this issue for investors, the analysts say.


Interestingly, where these products are being sold, it appears to be through fee-based relationships.


These arrangements presumably pay the advisor a lot more than the 0.25% that will be the cap for 12b-1 commissions under the new rules, so advisors will still be earning a significant amount of revenue here.


For the rest, everything hinges on whether the final rule allows fund companies to keep charging recurring fees above 0.25% for awhile.


As the analysts note, this kind of "grandfathering" approach would let the money managers keep big 12b-1 fees for longer than most investors keep their funds.


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