I’ve been hired by a couple of broker-dealers in how to develop a plan to comply with the new fiduciary rule. Unlike some of my competitors, all of my fees are based on a flat fee (cheap plug here).
I’m often asked how a broker-dealer can meet the standard of the fiduciary rule when it gets implemented. Don’t expect me to give the store away and provide all the trade secrets in a secret blog, but I believe that the new fiduciary rule is going to radically change a broker-dealer’s business when it comes to being a plan fiduciary.
Saying that you’re just going to slap the fiduciary definition on yourself isn’t enough and getting a best interest contract signed isn’t enough because there are issues dealing with fees and individual brokers that have to be worked on. When it comes to trails from mutual funds being paid to brokers, I don’t think many broker-dealers can get a handle on what fees are actually being paid, it’s almost like peeling an onion when you’re dealing with an alphabet soup of share classes and different forms of remuneration. Any broker-dealer is going to need to identify what fees they are getting if they have any hope of meeting that best interest exemption.
Another issue is what I call “the dumbest person in the room”. I worked in many different types of businesses and I’m always concerned about the dumbest person in the room that could entail issues that could create potential liability. When it comes to a broker-dealer, there are many brokers who knew the ramifications of working with retirement plans and there are some who just don’t have the knowledge and for one reason or another, won’t get that knowledge. I believe that getting ready for the fiduciary rule is putting a system f checks and balances in place to avoid the broker-dealer getting sued because the broker who is “the dumbest person in the room” is doing something they aren’t supposed to do.
These are just two ideas that broker-dealers need to think about before deciding what to do. For further questions on how to meet the new rule, please give me a call.