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Fiduciary rule causing some advisors to reconsider comp models

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ARLINGTON, Va. – Advisors prepare for the worst as they anticipate clarification on the fiduciary rule and its possible impact.

With less than six months before the DoL begins to implement its rule in April, advisors still have questions about how they will sell products as well as market themselves to prospective clients, said Mike Brady, the founder of Michael Brady & Co., in Olmsted Falls, Ohio.

"It just seems counterintuitive to me," Brady said at NAPFA's Fall Conference. He added that his biggest concern is demonstrating to clients that they are better with him before providing, "full financial planning advice."

Brady's firm, which has two employees and manages a combined $85 million in client assets, is in limbo, he said. They are now considering altering their fee-structure soon as next year to comply. Although the best interest contract exemption is one way for advisors to be permitted to receive commission-based compensation, Brady said there are still questions.

"Do you need another disclosure that said, 'I agree to pay your fee, which is greater than the no-fee that I'm paying in my plan'?" Brady asked. "Isn't that what they’re doing when they sign your contract?"

"You could be fee-only in 99 situations, but it only takes one to potentially not be, and therefore you would need a different type of exemption," said Thomas E. Clark Jr., an ERISA attorney with the Wagner Law Group.


A fee-structure change may be a very real possibility for many in the fee-only business, according to Thomas Clark Jr., an ERISA and business litigation attorney at the Boston-based Wagner Law Group, who travels the country helping advisors cope with the potential effect of the rule.

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"That's the part of the careful planning process that you have to go through between now and April, to understand whether you truly are fee-only — from front to back of your business in every situation," Clark said. "You could be fee-only in 99 situations, but it only takes one to potentially not be, and therefore you would need a different type of exemption."

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Some advisors may not have an entirely fee-based practice, or may have current operations that will ultimately conflict with the new rule, Clark said. Their answers, he added, may be solved by a variation of the best interest contract exemption agreement, the contract for which advisors must pledge to act as fiduciaries.

"The BIC exemption will protect them — it’s just which version of the BIC," he said. "Hopefully it's the streamlined BIC, and hopefully the DoL provides complete and utter clarity on how someone with this type of business practice can go through, and which exemption they need under which circumstance."

Benjamin Birken, an advisor at Woodward Financial Advisors in Chapel Hill, North Carolina, suspects that much of the industry is still not fully aware of the new rule's full scope.

"It's the unknown attitude about the rule breeds confusion and misunderstanding," Birken said at a panel discussion on the rule at the NAPFA conference. "This is why you see webinars and sessions like this packed no matter how many times we do this."

Clark said before getting into the granular minutia of the rule, the DoL must elaborate on the provisions, as well as the exemptions, in order to allow time for preparation.

"When the DoL provides the FAQs in the next couple of days or couple of months; that will be the next opportunity for everybody to pay attention," Clark said.

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