DOL Rule Could Force Broker Moves
November 30, 2016
By Dan Jamieson, Financial Advisor
Many advisors who will be unable to sell commissioned investments in IRAs after the DOL rule goes into effect are being forced to shop for new homes.
Firms and recruiters are seeing an uptick in the number of inquiries by reps looking for firms that will accommodate commission business. Some firms appear to be waiting to see if the rule survives, but that’s a big risk, observers said, because advisors can’t be stuck come April, when the rule is set to go into effect, with no way to do business.
“A fair amount of smaller B-Ds are not open to the BICE contract,” said recruiter Jon Henschen. “These small and midsized B-Ds have a lot of transactional business, and for [commissioned-based] reps, it’s a really big deal.”
The best-interest contract exemption, or BICE, allows brokers to sell commissioned investments to IRA owners.
Henschen said he’s targeting about 10 B-Ds that have told reps they won’t be using the BICE. He declined to identify the firms for competitive reasons.
“We have never had so many live recruits,” echoed Steve Distante, chief executive of Vanderbilt Securities based in Woodbury, N.Y., an independent dealer that will be using the BICE.
Distante said he was talking with eight potential advisor recruits, most of them individuals or OSJs affiliated with small B-Ds.
“They’re just tired of how their firms are reacting” to the DOL rule, “with indecisiveness or dictating that ‘This is what we’re going to do,’ without the proper information,” he said.
John Straus, chief executive of FallLine Securities, which targets high-end hybrid breakaways, also says his recruiting activity is picking up as a result of the DOL rule.
“We’re having dozens and dozens of those conversations as we speak, and I expect a number [of advisors] will decide to leave,” he said.
Straus is critical of decisions by some firms to eliminate commissioned products in IRAs, which will eliminate the ability to put, for example, alternative investments into a tax-sheltered account.
“Big advisors are the ones absolutely hurt the most” with those policies, he said. “Wealthy clients don’t want to hear their advisor say, ‘We don’t do that—we don’t want to do the [BICE] paperwork.’”
But several firms that have announced a phase-out of commission business in IRAs say the impact on advisors will be minimal.
Merrill Lynch’s decision to end commission business in IRAs will impact less than 10 percent of the firm’s $2 trillion in assets, said Paul Donofrio, CFO of Bank of America.
As far as advisor movement, “we don’t expect significant attrition” from the change, Donofrio told analysts in October.
Merrill Lynch spokesperson Susan McCabe declined further comment.
Mark Albers, president of Albers & Associates, a recruiting and consulting firm, said he got calls from Merrill advisors after Morgan Stanley announced in October that it would—contrary to Merrill—allow commission business under the BICE.
The immediate reaction from Merrill reps was, “‘How come Morgan Stanley can do it and we can’t?’” Albers said. The change by Merrill “definitely has got a lot of people looking.”
That said, Albers notes that because many Merrill brokers have most of their assets on a fee platform anyway, most will deal with the change.
That’s what Wayne Bloom, chief executive of Commonwealth Financial Network, expects advisors at his firm to do. Commonwealth, like Merrill, will not be supporting commission business in IRAs under the DOL rule.
“In all the conversations I’ve had, advisors have been OK” with the policy, Bloom said.
“We have fee-based landing spots for all products,” he added.
And in case some advisors’ production falls as they shift business to fee accounts, Commonwealth will maintain individual payout levels through 2018, and has made loans available to those who need some help in making the switch, Bloom said.