Financial advisory firms are hunkering down for another hit to their bottom line: The fiduciary standard is on its way. First stop: retirement accounts. And I predict a second stop is not far behind: everything else.
Once the camel’s nose is in the tent, the rest of the camel can’t be far behind. It’s not feasible for an advisor to service accounts with two different sets of standards.
Now this change from the Department of Labor has long been in the making. As I see it, there will be major consequences that will affect each advisory channel differently. There are definitely some winners and losers here:
RIAs. Being in the fiduciary business, they will not have to dedicate resources to getting up to speed with the new requirements. Their ranks will continue to grow. Former wirehouse advisors will find them a welcome refuge from FINRA and DOL rulemaking.
Fee-based advisors. Expect everyone to court them now more than ever. Fee-based advisors with mostly $250,000 plus relationships will be especially prized.
Transactional advisors. It’s official: they are now more of a burden to supervise and will have a harder time doing business.
Advisors loaded up with annuities and REITs paying 7% gross commissions. These are soon to be obsolete products. Firms won’t pay up-front money for this business.
Smaller producers with less than $300,000 in gross will have a hard time finding a home. Too much risk; not enough reward. Many will exit the business and sell their books. The price of a book of business will dip.
Broker-dealers. Their technology costs to comply with regs will go up; and they will lose platform fees, that is, “pay to play” payments from asset managers on their platforms.
Independent broker-dealers. Many will be forced to merge or will shut down. The sacrosanct IBD 90% payout may be reserved for big producers.