If bank advisers feel perplexed about the new fiduciary rule and unsure how it will affect their future, I can let them in on a secret: their banks are in the same boat.
If I had to sum up our latest Industry Leadership Forum, it would be that there are still more questions than answers. The executives who attended the meeting represented a good cross section of the channel: community, regional and national banks, as well as a few product providers.
To be sure, there were some strategies discussed, but much of our time was spent in impromptu conversations with the participants asking one another about a specific aspect of the new DoL rule. In what I believe was a partial joke, one banker said he was waiting to see what Wells Fargo would do.
First and foremost, there was wide agreement that many of the lower ranks of advisers are going to be vulnerable to losing their jobs. The vast majority of wealth management revenue in the bank channel is still from transactional business, which is precisely the business that could be deemed to be not in the clients' best interests. And the advisers who have the majority of their books in transactional business -- and are unwilling or unable to change -- will find their approach is no longer acceptable. To use the age-old business metaphor, they could find themselves the modern equivalent of the old buggy-whip makers.
Even the advisers who are able to navigate the new, fiduciary world, however, are likely to see changes; namely, changes in their compensation. Banks are increasingly looking at a salary+bonus comp structure, according to several participants. And for those advisers, the caveat will be how the bonus is structured. Several participants of our Forum noted that there will be less revenue in general, partly due to the fact that simpler and cheaper financial products will be the rule of the day.
When the subject of advisers' reaction came up, one thought that surfaced in our conversation was that they would have little recourse. Since the entire industry will be changing to a new fiduciary system, there will be little opportunity for advisers to jump to a new ship more to their liking.
Moreover, one participant noted that hiring at his bank could get tougher in the future for advisers due to the importance of managed money. For an adviser to get hired at his bank, he said they will probably need at least 30% of their book in managed money. Simply being a million-dollar producer isn’t necessarily enough anymore, he said. Now, the bank wants to drill down and understand just where that $1 million in revenue is coming from.
For advisers looking to make a move there was one slightly offsetting good news idea, albeit a fleeting one. The banks' reactions to compensation will be slightly different, and likely will be rolled out at different rates. So while that changeover is taking place, an ever-changing, uneven playing field could make it easier for some banks to recruit new advisers, at least temporarily.
One participant noted the unfortunate confluence of trends at work in the industry: At a time when the channel needs more advisers, it is likely to lose some of its lower ranks. Meanwhile, the better performing advisers are still salespeople (regardless of what titles they're given) and they want to be paid according to their work.
