The death of the Fiduciary Rule is all but a foregone conclusion and its demise has put large firms in a position where they must create a new roadmap for the future when it comes to internal policies and procedures. When the DOL first introduced the Fiduciary Rule, many large firms scrambled to realign business processes with the Rule’s anticipated protocols. The end result was that many large firms made rash decisions and were overly cautious on vitally important matters including which products advisors could offer, what commissions would be paid, and how clients could be serviced by the advisor. All of this was done in order to align with what the Rule outlined as best practices on behalf of a client by a fiduciary.
With the Fiduciary Rule drifting into obscurity; however, many wirehouses are now capitalizing on the current regulatory environment and reeling back in the poor policy decisions that they made in haste when it seemed as though the principles of the Rule might still matter.
One such example is Merrill Lynch. Andy Sieg, head of Merrill Lynch Wealth Management, announced to the firm’s advisors last week that they were rescinding the company-wide edict that prohibited commission-based retirement accounts. This was a good move by Merrill and is the first of what will surely be similar actions taken by many firms as they unwind policies that have presented themselves over time as more restrictive than the actual prospectus dictates.
Another example of a firm that over-reached in its policy implementation is LPL Financial. LPL completely changed the pricing of its investment products to align with a perceived passage of the Rule. The company also restricted the purchase of no-load mutual funds in brokerage accounts and released a Mutual Fund program meant to eliminate perceived advisor conflicts of interest. Each of these policies, in turn, are now outmoded and have proven detrimental to the firm’s long-term success as an ever-increasing number of LPL advisors have chosen to jump ship and seek safe harbor elsewhere at another firm.
Anticipate more policy changes to come at many wirehouses. One prediction is that we will also see firms modify their transition deals away from only paying on the back-end of the deals for NON-ERISA accounts and returning to paying on all assets.
The necessity for large firms to make yet another round of policy changes is not just indicative of the end of the Fiduciary Rule, but proves a good example of why wirehouses are losing favor with advisors and smaller regional and independent firms are gaining traction. Independent firms are able to be more nimble, structure their own business practices, and not fall prey to the pressures of regulatory whims.
Again looking at the Fiduciary Rule, most independents waited and choose not to implement any policy changes until they saw for certain that the DOL Rule was definitive. Granted, they had the new policies ready to go if the Rule passed. However, when the Rule faded to dust, it was as simple as the independents scrapping the game plan and going back to business as usual.
Not so with the larger firms as the size of these firms by nature meant it would take longer to implement new processes and thus the large firms were forced to jump the gun and put in place rules and structures that now need to be stripped away.
If you’re at a firm that has made changes to compensation, products, or client relations in light of the prospect of the DOL Fiduciary Rule yet you do not see a concerted effort to unwind those changes, ask yourself this – Why? Why would a large firm hold on to strategies that hurt advisors and perpetuate unfair compensation? Is your firm holding out for the DOL to come back and do their dirty work for them with yet another evolution of a plan limiting advisors in both their job functions and in their paychecks?
A hard look at the answers to those questions could mean that you are best served by considering a new, more independent firm that has the practical abilities and supportive culture best able to withstand whichever obstacles may come on your personal journey down the financial services road.
For more information on Elite Consulting Partners and how we can assist you with your career transition, visit www.eliteconsultingpartners.com/
