Are You Going to Lose Your Financial Advisor?

financial-stressAre You Going to Lose Your Financial Advisor?

If you are working with a financial advisor, you need to read this post.  The Department of Labor passed a new set rule that is to govern the entire financial services industry. It is called the Fiduciary Rule and it partly goes into effect April 2017.  First, let me give you a quick explanation of how the business is set-up.

There are two sides to the business. One is governed by FINRA and is the commission side of the business and the other is the Registered Investment Advisory (RIA) business which is fee based. The RIA side has always been held to the fiduciary standard. The Fiduciary standard means that the advisor is to by law put the client’s interest ahead of the advisor.

It is not that way on the commission side of the business.

The commission side of the business isn’t by law held to the Fiduciary standard. They are expected to make recommendations that are “suitable.”  Well that is a gray area because most investment recommendations can meet that standard and not be the right fit for the client but create advantages for the advisor. In that case, the advisor put his or her interests in front of the client’s interest. So in an effort to fix that problem the Department of Labor passed a 1000 plus page making EVERYONE adhere to the Fiduciary standard. As you would imagine, the government is now over regulating advisors.


I am not going to go through all of the details of the new rule. However, I am going to spell out what I believe and industry experts believe will be the fall-out.

(1)  The Commission side of the business might not survive this new rule

Already Merrill Lynch has announced that they will no longer allow commission based IRAs. I am sure that there will be more to follow. It is going to be tough to run a commission based model with this new rule. As a result, financial companies don’t want the liability.

(2)  Commission based advisors will have a tough time staying in business

I don’t know the number of advisors who are the commission side versus the fee side. However, I would imagine it is a much greater number on the commission side. If you have built your business on commissions, then this rule starts to limit how you can make money. There was talk that commission based advisors will be forced to convert to the fee side. However, this rule also makes that problematic on top of the fact that conversion is a tough challenge in the first place.

(3)  Very few people will want to enter the financial services business

The commission side of the business makes it easier for new advisors to start in the business. It is almost impossible to start out on the fee side. The fee side is what commission advisors graduate to.

(4)  A good portion of the population will not have access to an advisor

Advisors will be forced to put a limit on who they will take in as clients. With increased costs and most importantly increased liability that was not there before the rule went into existence, advisors will only take the larger clients. Thus, the average American who are not considered wealthy will be left to fend for themselves.

Like any advisor, I am going to be forced to implement new procedures in my RIA practice. There will be new costs. There will be new procedures. However, the good news is that we have already been operating under this standard. I don’t plan to alter who I work with or exclude anyone.

So, if you lose your advisor or you feel that your advisor won’t pay necessary attention to you because you don’t meet their new standards, let’s have a conversation. You can set up a time us to talk by emailing Judy Parrish at or give us a call at 972-386-0384.

I could have written a new ruling in about 10 pages that would have solved the problem. Unfortunately, regulators are going about this in the wrong way and taking steps that will ruin a great industry.

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