A new Labor Department rule that requires financial advisers to act in their clients' best interests rather than merely providing "suitable" recommendations from which the firm might also benefit is great news for consumers: It strengthens safeguards unchanged for more than 40 years.
It's arguably less so for wealth management firms, though e-brokerage companies like Charles Schwab (SCHW - Get Report) , TD Ameritrade (AMTD - Get Report) and E*Trade Financial (ETFC - Get Report) stand to be hurt less since many of their funds let users move money around by themselves.
The rule, set to take effect in June, is designed to curb risks to consumers including retirees that arose during a broad shift from traditional company pension plans, which were more tightly regulated, to 401(k) and individual retirement accounts, whose advisers didn't have to meet the same requirements.
By classifying all such advisers as so-called fiduciaries, the Labor Department said the new rule closed a loophole that had allowed some to "give imprudent and disloyal advice; steer plans and individual retirement account owners to investments based on their own, rather than their customers' financial interests; and act on conflicts of interest in ways that would be prohibited."
The rule is likely to be "disruptive" to the industry overall, said analyst Michael Wong of Morningstar, and the comparative benefits to e-brokerages would have increased with greater restrictions "It's still our opinion that it's a net positive for online brokerages," Wong said. "It's not as positive as the initial proposal. When you compare the proposal to the finalized version, this is more lenient on the full service wealth management firms."
The new regulations are likely to be a focus of the firms' earnings calls, Deutsche Bank analyst Brian Bedell said in a note to clients, with executives fielding questions about its general impact.
Bedell said Charles Schwab is best positioned to benefit from the new rule; Ameritrade will also get a boost and E*Trade will see a minimal impact.
Charles Schwab, with a market value of about $17 billion, has fallen 14% this year to $28.42, while E*Trade dropped 18% and and TD Ameritrade declined 12%.