Q&A: Commission-Based Advisors’ Compensation

Financial Advisor fees, financial advisor fee, fee only advisor

Question: I am a commission-based advisor. The new rule that the Department of Labor has issued requiring me to adhere to the fiduciary standard (it will require all financial advisors to provide advice that’s in their client’s best interests) is simply an assault on the commission-based model. It is regulatory overreach. The industry could come up with reasonable limits on commissions instead. I’m interested in your response.

Ric: I’m afraid you’re fighting a fight you’ve already lost. The fiduciary standard is becoming the law of the land — first for retirement plans, which are under DOL’s jurisdiction, and eventually for every part of the financial services industry.

As a commission-based investment-product salesman, you need to get your head out of the sand: You are about to be regulated out of business. End of story. 

Your only choice, therefore, is to move to a fee-based model, which is what regulators and legislators want you to do (it’s already law in England and Australia), or leave financial services and get a job where commission-based income remains common. Perhaps a career in used-car sales?

The debate is over, and the commission side lost. It’s time for you to come to terms with it.

The sooner you do so, the better off you and your clients will be.

Originally published in Inside Personal Finance May 2016

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