When I go to industry events these days, I frequently hear about how difficult it is for independent broker-dealers to implement any major new initiatives that drive value for the financial advisors they serve until there is total clarity on what the regulatory landscape looks like after the Labor Department's fiduciary rule goes into effect.
So the thinking goes, once we are in a post-DOL landscape, firms can jumpstart the various programs that make the most sense, adjusting as needed for whatever the "new normal" environment specifically dictates.
Unfortunately, this presents a "go big or go home" false choice for the industry. And worse, it's a false choice that may be built on an incorrect premise — There are no guarantees that after implementation of the DOL rule there won't be significant further modifications made to it, or that the implementation phase itself gives birth to further areas of uncertainty that require additional clarification.
With this context in mind, it's time for independent broker-dealers to refocus on low-cost and easily implemented opportunities to add significant value to the financial advisors they support. Along the way, this could provide a substantial opportunity for such firms that seize the moment to differentiate themselves from the rest of the pack.
Three low-cost, “low-hanging fruit” opportunities for firms to add value to advisors and their businesses are the following:
1. Promptly pay commissions. Obviously, due to regulatory trends and shifting consumer preferences, the number of advisors that rely solely on commissions is declining rapidly. Still, this compensation structure continues to be the best option for many clients and, thus, remains a big part of numerous advisor businesses across the country. However, it’s not unusual today to hear advisors say they wait a month or more before they receive commission-based income.
Is there any good reason why a firm should be withholding commissions and essentially allowing those resources to float within their own accounts? Probably not. Indeed, broker-dealers should seek to pay out commissions within two weeks, if not sooner. Prompt commission payments enable independent advisors to better project their budgeting and business investment decisions.
2. Proactive communications. How much time do firms devote explaining and communicating what’s new, not only within the company but the industry as a whole? As we know, the independent financial services space has undergone some massive evolutions in recent years, and if history is a guide, that trend will only continue going forward.
Advisors don’t have time to stay dialed into the latest compliance and regulatory news, which is often complex and shrouded in minutiae. Along with keeping advisors abreast of important internal updates, this is an area where firms can provide added value to advisors, helping them make sense of such details and how they could impact their particular business.
3. Making compliance more nimble. As the landscape becomes more and more competitive, a growing number of advisors are boosting their marketing and advertising budgets in an effort to win more clients. To that end, when an advisor submits advertising or another piece of marketing material, like a bylined article for publication by certain press outlets, it’s important that the review process is as abbreviated as possible. Additionally, it needs to be consultative, with compliance departments working very hard to find the right balance between helping advisors carve out a distinctive message and protecting them against potential regulatory issues.
There's no question that the independent financial advice industry as a whole is grappling with an unprecedented period of regulatory uncertainty.
Nevertheless, there's no reason why independent broker-dealers need to hold off on common-sense tactics that don't require significant cost, yet can significantly move the needle for the advisors they support.