What the broker compensation disclosure rule will mean for advisers

Dec 8, 2013 @ 12:00 am

Runtime: 3:08

A pending new rule requiring financial advisers to disclose the compensation they receive to switch firms will affect the pace of recruiting and conversations with clients, according to Mindy Diamond, president and CEO of Diamond Consultants.

Video Transcript

FINRA passed the broker disclosure rule, but now it needs to go the SEC for approval. We expect that it will pass, but I think there's a lot of specificity that needs to be applied to it. There was a lot of outcry once FINRA passed it, a lot of outcry from firms and advisors complaining about some of the terms and some unfairness and some inequities in it. So, I think that there were things that have to be figured it out and so it feels a little like they're dragging their feet, but we have no indication of when. We expect that it will pass. The one thing that's interesting about here is that we have seen some movement accelerated. We've got some advisers we're working with or advisers we expect to know they had a move in them. I said, I'm gonna move in me a year or two years from now or I'm frustrated, but I'm thinking about it. The fact that this rule will likely be enacted has actually served to accelerate some moves and I think you're gonna exceed that until it passes. Even once it passes, they have-- there has to be some sort of time that they give brokers notice that they, you know, within six months, they're going to have to. You can't just enact and say tomorrow it becomes a rule. So, I think we have some time before that happens. I think that the advisers that will be most impacted by it if it passes. Our advisers that generate significant revenue, that generate say more than a million dollars in annual revenues, so if they were to move, they're certainly eligible for a very sizable remuneration package, but they serve as a lower net worth client base. So, if you're an adviser that's generating a million dollars and gonna earn a $3.5 million bonus and now you need to tell your client, your client who is in the $250,000 to $500,000 range that you're being paid $3.5 million to walk across the street, I think it's a little harder to have that conversation with that client than it is in ultra high net worth entrepreneur. If you're a quality advisor who's always done right by your client and your clients are largely entrepreneurial, it's not hard to explain the fact that you're being incentive because you're good at what you do in order to make a move and that you walk away from considerable less deferred comp where you owe money back and it's for gives over a span of nine years or ten years. So, at a rate of one-ninth per year, you really only earning let's say anywhere from 100,000 to several hundred thousand dollars a year and I think that's easier to understand. It's more of a guaranteed salary. You can explain it as opposed to anything else. The wary is that the-- it's really giving clients information in a vacuum. They don't understand adviser compensation or package as what deferred comp means or retention packages that have to be paid back and the wary is giving them a lot of information that will confuse them not necessarily protect them.


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