The new pressures and costs of the DoL rule appear to be providing a good impetus for B-Ds that want to simplify their compliance lives a bit by nudging or even pushing their advisors away from direct, "check-and-app" mutual fund business.

The broker-dealer's broker-dealer (well, clearing and custody giant) is observing the shift. Mitch Bell, senior relationship manager and director at Pershing, revealed last month on a panel at Pershing's Insite conference that the broker-dealer clearing giant had already seen 450,000 direct mutual fund positions shift to brokerage accounts so far, 50 percent more than the 300,000 that shifted through all of last year.

1st Global president David Knoch tells FA magazine that the B-D has seen its direct mutual fund account count fall 20 percent so far in 2017. He predicts that more than a third of those accounts will shutter by the end of 2017, and he's shrinking their direct mutual fund firm selling agreements from 80 companies to 5 (also by the end of the year).

In August 2016 LPL executive vice president Rob Pettman told advisors at the giant independent B-D's Focus conference that no new direct mutual fund brokerage business will be allowed at LPL. Yet LPL will grandfather in $50 billion in client assets currently held direct with fund firms, FA magazine notes.

Advisor Group created an NTF mutual fund account earlier this year specifically as a direct mutual fund account alternative, vice president Allison Pratt tells FA magazine. And the B-D group might shut off new direct mutual fund account business in 2018 in the wake of the DoL rule, Pratt adds.

And at least one fund firm, Hartford Funds [profile], started charging $30 per year for direct accounts and will no longer accept new direct accounts starting in October, FA magazine notes.

Looking ahead, watch for the DoL rule (which started taking effect last month and is currently scheduled to finish taking effect in January, pending a DoL review that might change or push back that date) to contribute to a further shift away from direct mutual fund accounts.

"I don't see direct-to-mutual-fund business staying around" in the future," Pershing's Bell said last month. "It's difficult for broker-dealers to supervise [and] never efficient for asset managers or advisors." 

Edited by: Neil Anderson, Managing Editor


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