• Banks will change third party brokerage service providers, and bank advisors will look to join a more traditional IBD. The DOL rule may have its most significant impact on bank advisors. These advisors often have a limited commission based product offering and are selling an abundance of fixed and variable annuities. While the DOL’s rule for commission-based products is more palatable than the earlier proposal, these advisors will be forced to stand by their recommendations as being in the best interest for their clients.
This will have a two-fold impact: Bank advisors will look to leave the bank for a different channel in larger numbers, while smaller banks that use a third party broker-dealer will also look to make changes to a firm that better supports more fee based and financial planning. While there is no "one size fits all" approach here, the majority of bank-based advisors tend to be W-2 employees, so the IBD firm that can offer maximum choice and flexibility in terms of affiliation options that allow the advisor to both go independent but not do so alone—through, for example, Super-OSJs or large branches—may be at an advantage here. For banks seeking a new third party brokerage provider, the solution set may be driven more by considerations of scale, stability and resources.
Finally, there are nearly 100,000 independent advisors and they are scattered across hundreds of more traditional independent broker-dealer firms. The DOL has exposed this channel as having too many firms that are struggling to survive. This will definitely translate into a "flight to quality," not necessarily in terms of sheer size and scale, but in terms of management stability, compliance support reliability and an ability to deliver truly personalized service to the advisor in a culture where he or she feels comfortable.
But make no mistake about it, for the first time in over a decade all four of the major channels of financial advisors have disruptive events going on that will create a dramatic increase in advisor churn in the latter half of this year and beyond. The winners are yet to be decided, but independent broker-dealers and advisors need to think carefully about what needs to happen so they're not on the losing side.
Jeff Nash is president and CEO of Nash Consulting Group LLC, a financial advisor consultancy serving broker-dealers, RIA firms and other independent financial advisor practices throughout the country.