Morningstar: DOL fiduciary rule reduces inflows to mutual funds with high loads
The Labor Department’s fiduciary rule reduced the amount of investor money that’s allocated to mutual funds that pay brokers a premium to sell them, according to a Morningstar Inc. report released Thursday.
Since the DOL measure died in court earlier this year, it’s unclear whether this trend in reduced inflows will continue under the Securities and Exchange Commission’s advice reform proposal designed to raise the standard of care for brokers.
The Morningstar study says that prior to 2015, when the DOL rule was proposed, brokers were generally more likely to recommend higher-cost funds. They changed their habits to comply with the pending DOL rule.
“Flows into mutual funds paying unusually high excess loads declined after the DOL proposed its fiduciary rule in 2015, and this shift is statistically significant,” according to the Morningstar report. “This reduction in the distortionary effect of conflicted payments suggests that firms put in place effective policies and procedures to mitigate conflicts of interest in response to the DOL rule and, further, that the SEC’s proposal could maintain this important momentum.”