Market turmoil poses risk to brokers going fee-based in wake of DOL fiduciary rule

Market turmoil poses risk to brokers going fee-based in wake of DOL fiduciary rule
Many see the new regulation speeding up a shift toward fee-based relationships as commissions become increasingly scrutinized for conflicts.
MAY 10, 2016
Broker-dealers are examining their revenue streams as they seek to adapt to the Labor Department's fiduciary rule amid heightened concerns about market volatility and regulation. Many see the new rule, which requires advisers to act in the best interest of clients saving for retirement, speeding up a shift toward fee-based relationships as commissions become increasingly scrutinized for conflicts. That acceleration might make sense. But some advisers are concerned the well-intentioned regulation is casting a shadow over all revenue that's generated from commission-based relationships, even when they make the most sense for investors, according to brokers who attended the fiduciary-focus roundtable at InvestmentNews in New York last Friday. While commissions may decline in a volatile market where jittery investors refrain from trading, an even bigger risk of losing clients in a fee-based relationship could arise, Michael Karalewich, CEO for Nationwide Planning Associates Inc., said during the roundtable. Seeing the toll that market turmoil has taken on their accounts, investors may question why they're paying any fee at all just to sit on the sidelines, he said. “I would be nervous if we had 100% of our revenue” tied to fee-based accounts, Mr. Karalewich said. “It's just too hard to predict.” Market volatility was the top concern among financial advisers in the first-quarter, with 28% flagging it as top of mind compared to 19% in the fourth quarter, according to a survey released Monday by Fidelity Institutional Asset Management. The survey also reflected increased attention on the election season and the DOL's fiduciary rule, with the political and regulatory landscape ranking No. 3 among their concerns behind portfolio management. Sixteen percent of advisers said they were focused on the government and the economy, up from 12% in the fourth quarter. The new fiduciary rule, released last month, seeks to protect nest eggs from brokers who push expensive investment products in order to collect higher commissions. Many brokerage firms will seek to diversify their revenue mix in anticipation of pricing pressure on traditionally higher commission products, such as annuities or non-traded real estate investment trusts, according to attendees at the roundtable.

Latest News

The 2025 InvestmentNews Awards Excellence Awardees revealed
The 2025 InvestmentNews Awards Excellence Awardees revealed

From outstanding individuals to innovative organizations, find out who made the final shortlist for top honors at the IN awards, now in its second year.

Top RIA Cresset warns of 'inevitable' recession amid tariff uncertainty
Top RIA Cresset warns of 'inevitable' recession amid tariff uncertainty

Cresset's Susie Cranston is expecting an economic recession, but says her $65 billion RIA sees "great opportunity" to keep investing in a down market.

Edward Jones joins the crowd to sell more alternative investments
Edward Jones joins the crowd to sell more alternative investments

“There’s a big pull to alternative investments right now because of volatility of the stock market,” Kevin Gannon, CEO of Robert A. Stanger & Co., said.

Record RIA M&A activity marks strong start to 2025
Record RIA M&A activity marks strong start to 2025

Sellers shift focus: It's not about succession anymore.

IB+ Data Hub offers strategic edge for U.S. wealth advisors and RIAs advising business clients
IB+ Data Hub offers strategic edge for U.S. wealth advisors and RIAs advising business clients

Platform being adopted by independent-minded advisors who see insurance as a core pillar of their business.

SPONSORED Compliance in real time: Technology's expanding role in RIA oversight

RIAs face rising regulatory pressure in 2025. Forward-looking firms are responding with embedded technology, not more paperwork.

SPONSORED Advisory firms confront crossroads amid historic wealth transfer

As inheritances are set to reshape client portfolios and next-gen heirs demand digital-first experiences, firms are retooling their wealth tech stacks and succession models in real time.