Two of the major ramifications of the fiduciary issue, for banks anyway, are destined to clash head-on sometime next year. One is an increase in costs, brought on by a dire need for more training for many branch employees, including platform reps. The other is the broad expectation of less revenue as a result of selling more passive investments.
These ideas (higher costs, lower revenue) were two of the takeaways from our most recent Industry Leadership Forum in Denver. We hold these meetings in conjunction with Stathis Partners as small, invitation-only gatherings for industry execs to discuss the issues on their radar screens.
More training is definitely top of mind in the channel, as it came up in previous Forums as well. Indeed, there will be a significant need to train FAs and platform reps alike to approach their jobs with a more nuanced mind-set. The way that issues are framed will take on more importance as advisers will need to act in clients' best interests instead of simply selling more products. One of our participants in the most recent meeting noted that more training is also needed for documenting conversations with clients.
On the other side of the fence, lower revenue next year due to the fiduciary issue was widely expected, and grudgingly accepted, by most of our crowd.
There was some debate, however, on whether the new rule should be a valid reason for lower revenue. In a discussion on budgeting for next year at bank programs, one participant maintained that even in a situation when each adviser produced less revenue, a bank can always hire more advisers to keep overall revenue at planned levels.
Hiring more advisers, however, is easier said than done because another interlocking challenge voiced by several participants is attrition.
This is really the major obstacle facing the channel, I feel. It's easy to think that a fee-only business model may force out the C-level advisers who have been conducting transactional business for 30 years and have no inclination to change.
That may be true, but if less revenue is generated in the new world order of the fiduciary rule, I'm concerned (and if I were a bank, I'd be deathly afraid) that the advisers who leave aren’t just the C-levels ones. I'd be worried that some of the top-tier will leave as well. The advisers who are great at sales (regardless of what you call them, they're salespeople) won't be complacent if they see their paychecks falling.
I've mentioned this concern a few times over the past few months, both at our Forums and in other conversations, and the usual reaction has been some version of: "Where are they going to go?"
To be sure, the fiduciary rule applies across the board so there's no way an adviser can avoid it. But there are ways that the best bank advisers can mitigate the effects it could bring. They could move to a wirehouse where at least they would get a higher payout. Or, they could leave the industry altogether and sell something else.
This idea also has been shot down, unceremoniously, the few times I've brought it up. But I still feel it’s a valid concern for banks. Bank advisers may truly love their jobs and their channel, but a cut in pay has the ability to supersede everything else, even job satisfaction. At the very least, banks could end up with a bunch of disgruntled advisers but based on what I’ve heard, none are giving it a thought.
One thing we didn't discuss at the last Forum was Donald Trump, and any possible ramifications his administration may have on the fiduciary rule (we met before the election.) But our next meeting is on Jan. 18 and 19, just before the inauguration, so that may generate some good presidential discussions then.
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