TD Ameritrade and Fidelity tweak RIA referral fees ahead of DOL fiduciary rule

TD is dropping its fees, while Fidelity is giving is RIAs fewer options on how to pay for referrals

Apr 21, 2017 @ 2:08 pm

By Jeff Benjamin

Client-referral programs at the major custodian firms are being quietly revised in preparation for the Department of Labor's looming fiduciary rule, but some industry analysts still question whether the changes will be enough to pass muster under the new rules.

Both TD Ameritrade and Fidelity confirmed changes this month to the fees charged advisers for client referrals from their retail investor businesses.

At TD, the 150 registered investment advisers participating in the AdvisorDirect referral program have seen the fees they pay the custodian for client referrals altered from 25% of the annual fee they charge on referral assets to 25 basis points annually on those assets.

The fee drops to 10 basis points above $2 million, and to 5 basis points above $10 million.

The changes at Fidelity's referral program, Wealth Advisor Solutions, removed the option of paying 20 basis points on the referral assets for a seven-year period.

As of April, the 90 RIAs participating in Fidelity's referral program will be charged 25 basis points annually on equity assets and 10 basis points on fixed income. Previously, advisers could choose between the current fee schedule and the 20-basis-point schedule.

A spokesperson for Charles Schwab Corp. said there are 170 RIAs participating in the Schwab Advisor Network referral program, and that the fee structure has not changed since 2007.

Schwab's referral fee schedule is reportedly in line with TD's new schedule.

During an earnings conference call Wednesday morning, TD president and chief executive Tim Hockey described the fee schedule change as an attempt to "normalize" and create a "a flat fee across our RIA partners."

"It is more in line with some of the tenets of the DOL rule, and it's designed to remove any potential conflicts of interest," he added.

Kevin Duggan, vice president and senior business consultant of Fidelity Clearing & Custody Solutions, also cited the DOL rule in justifying the fee schedule changes.

"Wealth Advisor Solutions and other referral programs like it will be considered fiduciary investment advice under the new DOL rule," he said. "Because of this, we leveled the fee for all advisers and expanded the oversight and diligence for all firms to ensure we can operate (Fidelity's referral program) under the new fiduciary standard."

Despite the effort, there are questions about the future of such referral fees under the fiduciary rule, which was originally scheduled to take effect April 10.

"This is one of those gray areas I would think a custodian would want to address with regulators under the new law," said Duane Thompson, senior policy analyst at fi360, a fiduciary training and consulting firm.

Jason Roberts, chief executive of the Pension Resource Institute, an ERISA compliance consulting firm, said the future of the referral fees could depend on exactly how the custodians are referring investors to RIAs.

"We're talking about some pretty astute firms with some very sharp counsel and compliance people, but the receipt of a third-party payment is a prohibited transaction under the new rule," he said. "I would be surprised if it was structured in a way where (the custodians) are giving fiduciary advice."

Because the fiduciary rule only covers qualified retirement account assets, Mr. Roberts said the referral programs might have to avoid specifics regarding which type of investor account is being referred.

"The cleanest path would be just referring the client and not getting into the types of accounts," he said. "One option would be to stay intentionally blind about the client."

Of course, as Mr. Thompson pointed out, being vague about an investor's needs defeats the purpose of a referral program that is designed to match investors with RIAs.

"It seems the (referring custodian) would have to know something about the investor in order to make the referral to an adviser," he said.


What do you think?

View comments

Recommended for you

Upcoming Event

Sep 13


Women Adviser Summit - Denver

The InvestmentNews Women Adviser Summit, a one-day workshop now held in four cities due to popular demand, is uniquely designed for the sophisticated female adviser who wants to take her personal and professional self to the next level.... Learn more

Featured video


What it took to win an Excellence in Diversity & Inclusion Award

Editor Fred Gabriel and special projects editor Liz Skinner explain how InvestmentNews chose the winners of our inaugural Excellence in Diversity & Inclusion Awards.

Latest news & opinion

Ameriprise to pay $4.5 million to settle SEC charges that five reps stole more than $1 million from clients

Agency censures firm for not protecting clients from thieving brokers.

SEC slaps Lockwood with $200,000 fine over unseen trading costs to clients

Clients were forced to pay fees in addition to the usual wrap charges, the regulator maintains.

Gotcha! 10 lessons from brokers gone bad

These cases show why regulators nabbed reps and firms, and how to avoid their fate.

Tax-credit investigation may trip up Wells Fargo

Justice Department is investigating bank's dealings in tax credits for low-income housing, sources say.

10 biggest boomtowns in America

These metro areas are seeing the biggest influx of people, work opportunities and business growth.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print