Skip to main content

You are here

Advertisement

A World Without Commissions

While there are no proposals to ban commissions in the U.S., under the DOL’s proposed redefinition of fiduciary rule it will be harder for commissioned advisors to work on ERISA plans and IRAs. Other countries, including the Netherlands, the U.K. and India, have taken initiatives that eliminated commissions on some or all products. The result: fewer advisors and arguably less access to advice for many people, especially lower-income investors who need it most.

• The Netherlands, which banned commissions in January 2013, has seen a 20% drop in the number of advisors due to firm bankruptcy, firings or retirement of advisors.
• The U.K. saw a similar drop; banks experienced a 40% decline in their advisors, claiming that it has become too expensive to train them.
• India eliminated front-end loads on mutual funds in 2009, driving many advisors to become life insurance agents. Some inventive advisors changed the way they characterize their fees but kept the same price structure.

Is the benefit of including more advisors under the definition of a fiduciary — with the intent to provide “conflict-free” advice, as the DOL calls it — worth the cost of potentially fewer advisors and less access to professional advice by lower income investors? Will online advice providers pick up the slack? Regardless of the answer, one thing does seem clear from the experiences of other countries: Limiting commissions will result in fewer advisors.

Advertisement