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Regulation and Compliance > Federal Regulation > DOL

Commonwealth CEO: ‘Unlimited Liability’ Led to Dropping Commission Products

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In his opening speech at Commonwealth Financial Network’s national conference, CEO Wayne Bloom presented an amusing slide depicting a snoozing Bloom dreaming of the Dept. of Labor’s fiduciary rule. “I’ve been living the regulatory and DOL dream,” Bloom said in Austin, Texas, Thursday, but it was no dream.

In an interview Friday morning, Bloom said he’s been spending at least half his time for months on how the independent broker-dealer would respond to the DOL rule, which he called “one of the biggest obstacles” Commonwealth has ever faced.  

The rule’s importance was directly related to the theme of the national conference, “Silver Linings; Transforming Obstacles Into Opportunities,” a trope reinforced by each Commonwealth speaker as well as outside keynoters ranging from Shark Tank’s Daymond John to newsman Dan Rather.

Last week, Commonwealth announced that as of the end of 2016 it would no longer offer commission-based products in retirement plans. In the firm’s statement announcing the change and in Bloom’s private and public comments during the conference, the decision to not avail itself of the Best Interest Contract Exemption was presented as a difficult but necessary step to not simply comply with this one regulatory change, but to position the company and its independent reps for long-term success.

The “mixed-up Dept. of Labor stew” of complying with BICE while facing “unlimited liability” should Commonwealth adopt the approach of continuing to offer commission-based products in retirement accounts led to the decision, Bloom said. It is “plaintiff’s attorneys,” he said in his speech, who are “the enforcement arm of this rule.”

Feedback from its own reps, especially its Advisors Council, proved “critical” in making the decision, Bloom said. And prompting much laughter, in his speech Bloom said that knowing Commonwealth reps’ penchant for providing feedback, “you certainly didn’t disappoint after we made the announcement.”

Unlike many in the industry who demonize the rule and its architects, Bloom called Labor Secretary Thomas Perez and Sen. Elizabeth Warren of Commonwealth’s home state of Massachusetts “decent people with good intentions” to protect retirement savers from conflicts of interest. Nevertheless, he said “the rule went too far; it’s the unintended consequences” of the fiduciary mandate that will hurt not only financial advisors but the very people the rule is intended to help.

While for Commonwealth itself, commissions on retirement products account for only 8% of the BD’s revenue, Bloom said the company is well aware that for some of its representatives those commissions represent a much bigger portion of their business. He also emphasized that Commonwealth will continue to support commission-based products outside of retirement plans.

But to support those reps most affected by the rule, and in response to reps’ feedback, Bloom said Commonwealth was working on helping advisors profitably “service smaller accounts,” and to increase the “breadth and depth of available products” in alternative investments and annuity products that are fee-based and will be able to pass the DOL’s “level asset-based fee.”

He said there are already “five or six options” for fee-based variable annuities on the Commonwealth platform, including one VA added just last week. The broker-dealer is also working on finding DOL-compliant solutions to advisors who have SEP, SIMPLE and 403(b) business.

Specifically, Commonwealth said it is rolling all IRA maintenance, transaction charges, and trading confirm fees into one overall platform fee. But for those reps who must move a large part of their business from commissions to fees in retirement accounts, Commonwealth will also be offering platform fee credits back to advisors based on the assets they have in its advisory program.

Bloom said Commonwealth is also freezing its payout grid for the next two years to help reps who may not be able to make their standard production goals because of the DOL rule, and that it would also offer special loans to those advisors most affected by DOL to help with their cash flow.

In concluding his public remarks, Bloom said “we understand” that complying with the DOL rule “is really hard, confusing [and has] many moving parts. But we’ll get through it together.”

In a conversation earlier in the conference, Andrew Daniels, who heads Commonwealth’s recruiting operations, said that since the announcement, Commonwealth’s competitors had been “calling all our advisors” to try to lure them away.

But in his interview, Bloom said that following Commonwealth’s announcement last week “Andrew talked to prospects” that Commonwealth was recruiting and that there was “zero impact” from the announcement. 

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