Chris Flint (left), Wayne Talleur, Valerie Brown & Richard Lampen

Executives speaking Monday at FSI OneVoice in San Francisco say their brokerage operations have changed in preparation for the Department of Labor’s fiduciary rule, and — with it or without — commission-based business models are on their way out.

“There’s no going back,” Wayne Talleur, president of Madison Avenue Securities, said before a crowd of about 700 attendees at the conference’s opening sessions. “We’ve evolved more in the last 18 months than we have over our [entire] existence.”

The regulatory push forced advisors with Madison Avenue “to look very hard at their businesses,” Talleur says. For all of them, the DOL drive requires advisors to see how they can best serve clients going forward; in some cases, this has meant finding a successor to take over a practice if an advisor “doesn’t want to make a turn.”

For advisors and broker-dealers alike, the executive explained, “The horse is out of the barn. DOL increases the costs of doing business, and this was true even before its final approval.”

While Madison Avenue “turned the ship as quickly as a small firm” in response to DOL, its advisors have seen an increase in the length of the sales cycle.”

To help the business adjust with this challenge, higher costs and other changes, Madison Avenue is “leveraging partnerships” with clearing and custody firms like Pershing and Fidelity, as well as with product sponsors, Talleur points out: “As we look at this, we decided we want to leverage beyond our internal talent.”

The firm held 25 separate meetings, he adds, investing “a ton of time and resources to it.”

‘Mother of Invention’

“Even if [the DOL rule] is delayed, we have entered into the fiduciary era,” said Valerie Brown, executive chairwoman of the Advisor Group, which includes several independent broker-dealers with a total of 5,000 affiliated advisors.

“As the saying goes, ‘Necessity is the mother of invention.’ The challenges presented by the rule caused us all to be extremely creative to help our independent firms better serve mainstream America,” Brown explained.

While some firms have “tended to think of [themselves] as vendors to independent advisors, our role is really to become true partners and to help advisors see around corners,” she said, echoing remarks made by Talleur.

“With a delay, we still have to eliminate conflicts or bring transparency … that is not 75 pages deep, so clients really understand [products] and how they relate to us,” Brown said.

“The fiduciary era is already here. A consistent standard of care across the whole business is really important,” she added.

More Pressures

Even with a repeal, the DOL rule “has set in motion a set of processes that piggyback on other [Securities and Exchange Commission] rules, market practices and the like,” said Richard Lampen, president and CEO of Ladenburg Thalmann, which is the parent firm of Securities America and other broker-dealers. “The hands of time will not be turned back. Things are changing, and they are going to continue to [do so] …,” he explained. “There’s a movement to the lowest cost shares, which regardless of DOL will continue.”

Lampen and Talleur discussed the need for the right size and scale in order to be competitive.

The DOL rule was a key reason Madison Avenue Securities decided to sell a majority stake to KT Equity Partners, which owns an RIA and has affiliated insurance and marketing operations.

“We scaled up our resources, which is increasingly difficult for small firms to do,” he said.

Such a move requires a firm have at least $500 million in assets and about $25 million in yearly fees and commissions, Talleur explains. Madison Avenue has about $2 billion in assets.

“The pace of change is accelerating,” he said, “and firm valuations are down. They are lower because of the [regulatory] environment” and related factors.