The steady flow of migration from the brokerage model of retirement services to the fee-based model over the past decade will clearly continue after the Department of Labor releases its finalized fiduciary rule this week, said Skip Schweiss, managing director at TD Ameritrade.
Schweiss oversees the firm’s Retirement Plan program, which offers RIA plan advisors turnkey tools — recordkeeping, asset custody, non-proprietary open architecture investment and trading platforms, and supporting education products for participants.
Launched in 2014, TD Ameritrade has seen the number of RIA retirement plan specialists competing for business increase 94 percent over the past year. The average RIA firm using the program has $350 million in assets under advisement.
Schweiss said the vast majority of RIAs using the platform are strictly compensated by fees on plan assets, and not the 12b-1 fees and other revenue-sharing agreements fiduciaries are allowed to accept, so long as those fees are disclosed to sponsors and participants.
As proposed, the DOL rule does not outlaw revenue sharing, but Schweiss says the finalized rule is likely to make the practices more difficult to execute going forward, echoing other stakeholders’ expectation of the rule’s consequences.
“We’ve felt for some time there is room for revenue sharing to go down, and eventually go away,” said Schweiss. “The rule will be a healthy nudge in that direction.”
Schweiss cautions that it’s not just the brokerage model of retirement advice that will be transformed by the final rule.
RIAs too will be impacted, he said.
“A lot of RIAs don’t think the rule will apply to them because they are already fiduciaries,” said Schweiss. “But many have been operating as fiduciaries on the ’40 act (Investment Advisors Act of 1940), and not ERISA.”
ERISA fiduciaries to retirement plans operate under strict self-dealing prohibited transactions, which require advisors to act in plan participants’ best interest.
In expanding that standard to anyone advising on a retirement plan or IRA, be them existing RIAs or brokers, the DOL rule is expected to dramatically impact the $7.4 trillion IRA rollover market.
Just how much is impossible to know, said Schweiss. In the DOL’s proposal, any advisor recommending a rollover of 401(k) assets to an IRA will be subject to ERISA’s fiduciary standard going forward.
Language in the final rule is expected to clarify how much in fees advisors can charge on assets rolled into IRAs.
The rule could create simple language that prohibits advisors from charging any more in fees on IRAs than participants paid in 401(k) plans — what Schweiss calls the “apples to apples” comparison.