Skip navigation
Preparing for the Coming DOL Storm

Preparing for the Coming DOL Storm

We know it’s coming, but we’re not sure when or how bad it will be. That’s how a lot of advisors currently feel about the Department of Labor’s pending fiduciary proposal for retirement accounts. Regardless of whether or not you service retirement accounts, everyone is likely to be subject to greater compliance oversight.

Battening Down the Hatches

While all firms will need to interpret the rules and then define guidelines, it’s the wirehouses and independent broker/dealers that will likely need to be far more stringent and inclusive, as they must create mandates for the organization at large. That is, new rules and mandates will need to be defined for tens of thousands of advisors. So whether you service retirement plans or not, you will be beholden to rules created for those who do.

In order to maintain profitability—and limit compliance exposure—wirehouses and IBDs are likely to cull their service offerings. Therefore, advisors who serve clients with commission-based retirement accounts are likely to see a reduction of available products, and downward pressure on their own revenue.

RIAs will also need to come up with a way to respond and ensure compliance, but they can do so in a more customized and flexible manner.

The Effect on the Value Chain

In a recent Wealth article, Michael Wong, equity analyst for capital markets at Morningstar, said the “entire value chain” would be affected by the rule, resulting in fewer commission-based products available to investors and a decline in the overall number of financial advisors. Other theorists expect attrition levels at wirehouses and IBDs to increase as advisors look for more flexible, independent options.

Some expect a wave of mergers and acquisitions in the independent space, as it gets more complicated and expensive to do business. To survive, many resource-starved smaller firms will need to join forces with larger firms, taking advantage of greater scale and a more robust infrastructure.

Shirl Penney, president and CEO of Dynasty Financial Partners, says we should expect to see a switch to more institutional funds in an independent environment, along with a movement towards advisory fees. “The industry moving more fiduciary-based will continue to drive further separation between advice and ‘product manufacturing,’” he says. Ultimately, we could see the wirehouses “spinning their advisory businesses out” from the product side, to limit the constraints on advisors who do not serve the product-based business.

Be Prepared

Given the uncertainty around the rule, advisors should use the next few months to answer the following questions:

Do I believe in the fiduciary standard? 

How will my client base respond to the new rules and requirements?

Does practicing under a broker/dealer umbrella continue to serve me given the fact that these models could mean more bureaucracy and less flexibility, freedom and control?

If you are making decisions based on what’s right for all constituencies, you will ride out this storm and thrive.

Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.