practice management | PLANADVISER March/April 2017

Assessing Independence

By John Manganaro | March/April 2017

Client Demand
Many advisers and supporting providers predict that these trends and their important implications will continue, come what may as to the increasingly unlikely final implementation of the DOL fiduciary rule. Morningstar, for example, predicts, “broker/dealers will not reverse the progress they’ve already made to comply with the anticipated regulation, in the best interest of investors.” 

According to Tricia Rothschild, Morningstar’s chief product officer, based in Chicago, “The genie is out of the bottle. The cat’s out of the bag. The train has left the station.” Rothschild says that commissions are on the way out, in favor of flat-fee work, which naturally favors the RIA approach and puts pressure on B/Ds to reconsider their strategies.

Speaking of B/Ds, she says, “Many firms in the industry clearly see the benefits that the regulatory-driven discussions have fostered—regardless of the details of the fiduciary rule—including facilitating operational efficiencies in the adviser’s workflow. They are adopting better tools to help advisers analyze investment products and portfolios in the context of a client’s unique needs; adding a more-curated menu of investment options available to advisers and their clients; and building an emphasis on holistic planning and the demonstration of value-added advice.”

Morningstar suggests that these changes have allowed B/Ds to reform themselves to better match shifting investor preferences, but it will be difficult to combat the perception that RIAs are inherently less conflicted than affiliated advisers.

Cerulli researchers agree, adding that boutique B/Ds “are one of the segments that will be most impacted” under the new fiduciary future. Sizing this portion of the market, Cerulli observes that B/Ds with less than $10 billion in assets account for more than 80% of overall B/D firm volume but less than 10% of adviser-managed assets.