Practice Management

Industry Trends Threaten Traditional Broker/Dealer Model

Broker/dealers (B/Ds) can address new regulatory pressures, and new competition, by enhancing their value proposition and embracing technology, a report by Cerulli suggests.

By Javier Simon editors@strategic-i.com | October 04, 2017
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Broker/dealers (B/Ds) can address new regulatory pressures, and new competition, by enhancing their value proposition and embracing technology, a report by Cerulli suggests.

Despite ongoing legislative battles to curtail portions of the Department of Labor (DOL)’s industry-sweeping conflict of interest rule, the regulation is under full implementation, as of June 9. The rule and other regulatory pressures have changed the way many advisers do business, and this shift could pose a major threat to the traditional broker/dealer model.

“One of the most important trends in the wealth management industry is the shift away from commissions to fee-based pricing,” notes Bing Waldert, managing director of U.S. research at global research and consulting firm Cerulli Associates. “Even if it is ultimately diluted, the DOL conflict of interest rule has reinforced the shift away from commissions to fees.”

In fact, excessive fees are at the center of litigation coming against the retirement planning industry, and commissions are often scrutinized regardless of whether an investment vehicle—including a B/D’s proprietary product—is in the investor’s best interest.

Thus, Cerulli finds many firms are deciding to mandate fee-based pricing even on individual retirement accounts (IRAs), which thefiduciary rule now applies to.

But beyond Capitol Hill, broker/dealers are facing growing competitive threats fueled by the rise of the independent registered investment adviser (RIA) model and a shift in consumer consciousness.

NEXT: Growing competition