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IPA Connection: Preparing for New Regulations Part 2

By April 1, 2016No Comments
The financial services industry is bracing for a year of extraordinary regulatory changes. Clearly, the recently released Department of Labor’s Fiduciary Rule is at the top of any list of issues that impact financial advisors. But the Fiduciary Rule is not alone on that list. Updates to customer account statement valuations, continuing implementation of the JOBS Act and other legislation will also impact your practice in 2016.
Product changes may not be the first item you consider when regulatory change beckons. But new products have already begun to evolve and are beginning to present new opportunities for clients.
The most obvious example of product development is the non-traded REIT ‘T’ share accelerated by Customer Account Statement Rule changes. T shares come in many different shapes and sizes but they are essentially a smaller up front commission with an ongoing trail.
Without a choice in share class for REITs, a client share class analysis was not necessary in the same way it was for different variable annuity or even mutual fund purchases. The proliferation of share classes amongst non-traded REITs, however, means that you will need to add them to your client share class analysis to make certain that expected holding periods match compensation appropriately.
The BDC Modernization Act is likely to be folded into a larger finance package as it works through the Senate but is expected to pass largely in tact. Upon implementation, non-traded BDCs will then have the ability to create multiple share classes. These new share classes will compel you to then add non-traded BDCs to your client share class analysis.
But beyond share classes, regulatory changes are providing an incentive to create alternative product types. Closed End Funds may provide a more efficient registration process with regard to states and the underlying assets are often similar to REITs, BDCs or limited partnerships.
Be diligent as share classes, enhanced product structures and different combinations of structure and strategy come to market. This is a great time to demonstrate your value to the clients you serve.