pa|nc | PLANADVISER November/December 2016

2016 PLANADVISER National Conference

By Lee Barney, John Manganaro and Rebecca Moore | November/December 2016
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Fiduciary Rule Aftermath for Non-RIAs
Today there is still much room for advisers to deliver products to tax-qualified retirement plans in a nonfiduciary capacity, observed panelist David Kaleda, a principal with Groom Law Group Chartered. However, this space is going to collapse very quickly under the new fiduciary rule, which will designate essentially anyone offering advice for a fee to retirement plans a full-fledged fiduciary.

“At the end of the day, the big focus is on the sale of investment products to ERISA [Employee Retirement Income Security Act] plans,” Kaleda suggested, “particularly as it pertains to the commission-based sales forces, or non-RIAs. The DOL is very clear that it sees no distinction between selling products to investors and providing investment advice. It doesn’t think that investors grasp the difference, and so it’s doing away with it.”

Commission-based sales forces pushing products out to the ERISA market, if they want to continue working in this capacity, will have to find ways to leverage the best-interest contract exemption, known as the “BIC” or “BICE,” Kaleda predicted. This won’t be easy, but it might not be as hard as some predict, either.

“The BIC is the way of the DOL providing an avenue to get paid per transaction in a much more controlled way that still agrees with the spirit of the new fiduciary rule,” Kaleda said. “Again, it is still possible to make it work with transaction-based comp. There will be a lot of use of the BIC. There is a lot of doom and gloom out there, but in my opinion it is workable.”

John Moody, president of Matrix Financial Solutions, suggested in no uncertain terms that advisers who are not looking at this new fiduciary rule as an opportunity should start packing it in now.

“There is no doubt that this is daunting for non-RIA advisers,” Moody said. “We get it. We are a shop that allows brokers to collect 12(b)1 fees directly from mutual funds. I’ll be frank. It’s hard to picture how we are going to ensure level compensation in our environment, so we’re having to engage with all of our partners and have really deep conversations around how to adjust. Levelizing compensation is a dramatic change.”

The panelists all speculated that some advisories will become flat-fee-only firms.