Even as federal policy debates cloud its future, the Department of Labor’s fiduciary rule plays a central role in the movement of broker-dealer representatives to the RIA channel, according to a recent survey of broker-dealer reps considering independence.
The 2017 Break Away to Independence Study, conducted by Jersey City, N.J.-based TD Ameritrade Institutional, surveyed 134 brokerage reps considering moving to the RIA channel. The respondents acknowledged that the regulatory environment, including the DOL rule, was currently creating the greatest challenges to the brokerage industry.
Over half of potential breakaways, 55 percent, said that they were waiting to see the fate of the DOL’s fiduciary rule and how it might impact them before deciding whether to go independent. Approximately one quarter of the respondents, 26 percent, said that they may become RIAs sooner because of the impending regulation.
When the survey was taken in September, federal officials were still mulling a proposed 18-month delay to full enforcement of the rule's provisions, which would apply a strict best-interest standard to all recommendations related to a client's retirement accounts. In November, a delay through July 1, 2019, became official.
Over one-third of the respondents, 38 percent, said that they had considered leaving their broker-dealer before, but did not follow through—most commonly due to concerns over the management of legal and compliance issues, a reason cited by 49 percent of the respondents who had considered independence previously.
“I think that we, as an industry, could do a better job making sure advisors have the right information about compliance,” said Scott Collins, TD Ameritrade Institutional's director of brokerage independence.
One-quarter of advisors also expressed a fear of losing revenue during a difficult transition as a reason for not going independent. Fewer advisors felt like the difficulties of business management, scale and brand were impediments to forming their own RIA, according to the survey.
The movement of wirehouses and other firms away from the brokerage protocol should not have a major impact on the attrition of broker-dealer representatives, said Collins.
“Someone who is driven, who wants to build a business and have more control and autonomy will find a way to make the move,” said Collins. “They’ll have to be more thoughtful, and possible have to seek some legal guidance, but it’s not going to keep people trapped."
Advisor attrition is causing many traditional financial firms to reconsider the brokerage protocol, since the largest segments of representatives signed retention agreements during the aftermath of the global financial crisis. The largest tranches of reps’ retention payments taper off in 2018 and 2019. Leaving the protocol is “one way of trying to keep those brokers from leaving, when those retention notes expire, these firms want to be able to protect themselves,” Collins said.