In Practice December 18, 2017

More Advisers Hope to Switch to Independent RIA Model

A TD Ameritrade survey found interest in becoming an independent RIA among advisers is high, yet uncertainty about the future is keeping most from making their move.

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As the number of independent registered investment advisers (RIAs) continues to rise, a recent survey studied the motives behind why financial advisers are seeking to strike it out on their own.  

The survey by TD Ameritrade found that out of the 134 brokers surveyed in September 2017, nearly half of respondents say their interest in breaking away mainly concerns the future state of the broker/dealer industry. Forty-six percent believe the brokerage industry is “on the way to significant deterioration.” On what the major challenges in the industry are, 85% pointed to shifting regulations and the uncertain regulatory environment as the principal challenge. In addition, 54% cite changing compensation structures, and 46% say damaged public trust and reputation.

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Also a factor on the decision to stay or go is the Department of Labor (DOL) fiduciary rule, with 55% of respondents waiting to see the fuller impact of the rule before deciding whether to make the move to independence. On the other side of the spectrum, 26% are considering breaking away to independence sooner, while 14% report the rule has had no impact on their decision.

Other reasons for leaving include the feeling of greater independence in decisionmaking, as 34% cited this flexibility as a motive. The survey shows that these advisers—or “breakaways”—widely believe independence may lead to more income and better control over their careers. Furthermore, speaking with current independent RIAs who have previously left a firm to practice on their own is a strong motivator for considering independence, according to the survey. Fifty-five percent of respondents have interacted with others who have made the switch to independence, and 57% developed more motivation to leave upon hearing advice.  

However, while some seek independence to grow income or gain ownership, others hope the switch keeps them away from company culture. The survey reported many respondents feel strong dissatisfaction with their current firm’s culture. Fifty-five percent were not satisfied with corporate culture, while 54% were unhappy with leadership/strategic direction. Another 54% were displeased with career opportunities, and 51% were not happy about compensation. Out of all those surveyed, only 12% were satisfied with their current employer.

While the prospect of leaving a firm may be scary to some, most respondents surveyed believe they will have the necessary support once independent. Thirty-eight percent report they are extremely confident in receiving guidance as an independent RIA, and 40% say they are somewhat confident. Seventy-percent hope former colleagues who have made the switch before can act as support guides. Other sources of support cited were events and conferences (11%), trade journals (9%), thought leadership/blogs/newsletters (7%), and social media (2%).

More information on the survey can be found here.

Uncategorized December 18, 2017

Updated Mortality Tables for 2019 Published

The IRS notice also includes a modified unisex version of the mortality tables for use in determining minimum present value for distributions with annuity starting dates that occur during stability periods beginning in the 2019 calendar year.

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The Internal Revenue Service (IRS) has issued Notice 2018-02, which specifies updated 2019 mortality improvement rates and static mortality tables to be used for defined benefit (DB) plans under Section 430(h)(3)(A) of the Internal Revenue Code (Code) and Section 303(h)(3)(A) of the Employee Retirement Income Security Act (ERISA).

The updated mortality improvement rates and static tables apply for purposes of calculating the funding target and other items for valuation dates occurring during calendar year 2019. The notice also includes a modified unisex version of the mortality tables for use in determining minimum present value under Section 417(e)(3) of the Code and Section 205(g)(3) of ERISA for distributions with annuity starting dates that occur during stability periods beginning in the 2019 calendar year.

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The mortality improvement rates for valuation dates occurring during 2019 are the mortality improvement rates in the Mortality Improvement Scale MP-2017 Report issued by the Retirement Plans Experience Committee (RPEC) of the Society of Actuaries.

The static mortality tables that apply under Section 430(h)(3)(A) for valuation dates occurring during 2019 are set forth in the appendix to the notice. The IRS says mortality rates in these tables have been developed from the base mortality rates and methodology set forth in Section 1.430(h)(3)-1(c) and (d) of the code using the mortality improvement rates specified in the notice. The static mortality table that applies under Section 417(e)(3) for distributions with annuity starting dates occurring during stability periods beginning in 2019 is set forth in the appendix to the notice in the column labeled “Unisex.” The IRS says the mortality rates in this table are derived from the mortality tables specified under Section 430(h)(3)(A) for 2019 in accordance with the procedures set forth in Revenue Ruling 2007-67.

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