Independent advisors fear new compliance could prove costly and distracting. Over the past six months, a sense that draconian new regulations will drag them away from needy and exasperated clients has replaced anxiety about general business growth as the RIA's number-one worry, according to new report by TD Ameritrade Institutional (TDAI).

Great unknown

"Regulatory changes are clearly weighing on the minds of RIAs right now, reflecting a growing fear of the unknown," says TDAI's director of advisor advocacy and industry affairs Brian Stimpfl. "[Though] there is little consensus on the impact new regulatory rules or oversight might have on advisors, there is significant concern new regulations could put downward pressure on profitability and reduce time with clients."

TDAI's latest survey of independent investment advisories, conducted about five weeks ago, finds that the impact of impending regulatory changes weighed most on the minds of 34% of the 503 independent RIA-based advisors polled. Worries about the economy was the first worry of 31% -- with profitability (27%), risk management (18), and marketing (17) rounding off the top business worries for RIAs.

No cigar

As U.S. legislators and government officials consider ways to fix the financial system including my shuffling regulators, most RIAs say they would prefer to see regulating authority stay with the SEC (33%) or the states (22%) followed by an existing self-regulatory organization such as FINRA (19%).

Besides oversight reform, regulators are looking at changing the fiduciary standard model. Right now RIAs are held to strict fiduciary standards -- they are required to act at all times in the best interest of the client. Two-thirds of them would like to see the fiduciary standard applied to brokers, who are now held to a suitability standard -- meaning they're supposed to make sure the products they sell or recommend fit the investor's goals and circumstances.

Many (49%) of the RIAs surveyed by TDAI say they will wait to see the financial impact any new regulation requirements might have on their business before deciding how to manage their costs. But nearly half say they would absorb any additional costs or pass some of these costs on to clients. Less than 10% figure they can get away with passing all or most of any additional costs to their clients.

Jersey City, N.J.-based TDAI is a division of Omaha, Neb.-based brokerage TD Ameritrade. It provides brokerage and custody support to about 4,500 RIAs. -FWR

Purchase reproduction rights to this article.