Fiduciary Rule: From Doom and Gloom to Thoughtful Change

Since the Department of Labor’s fiduciary standard for qualified retirement accounts was first announced, banks have “made some thoughtful changes to their compensation plans,” said Peter Bielan, principal of Kehrer Bielan Research & Consulting during his recent appearance on Bank Investment Consultant’s podcasts. Bielan spoke with BIC editor Lee Conrad to reflect on the changes that have occurred to advisor compensation in response to the rule.

“When the rule was first proposed,” said Bielan, banks’ initial response “was really driven a lot by the compliance aspect, and rightly so. Those changes had to be made.”

But as banks looked at the rule more closely, they started to see a business opportunity.

“Many firms looked at it and said, if we’re going to make these proposed changes from the compliance side, this is an ideal time to really look at how we pay advisors in a broader sense from the business side, and they incorporated that into the process as well.”

Two business objectives in particular came to be seen as aligned with the rule. One was placing more emphasis on financial planning.

“Of course, you needed to pay the advisor in a manner that didn’t cause conflicts,” said Bielan, but the rule “really required the advisor to take a much more holistic view of that client’s situation, do much more financial planning, and justify whatever those recommendations were.”

The rule’s prohibition on commission products in qualified accounts proved to be supportive of another common objective among bank brokerage firms: making the transition to fee-based business.

“Banks and broker dealers have realized that this is just going to speed up the transition to managed money that was already occurring,” explained Bielan. “In the long run, firms and advisors want a book of business that is much more geared to a recurring revenue flow which managed money provides.”

“As we’ve said many times before, [the rule] just compressed the next five years into one year.”

Bielan’s full commentary is featured in two podcasts available on the BIC website.