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DOL Rule an Opportunity for Elite Advisors with Small B/Ds?

While most of the industry is complaining about the cost and time required to comply with the DOL’s conflict of interest rule, some Elite Plan Advisors see an opportunity. But is this opportunity real?

The 50+ broker/dealers and RIAs which have at least one person dedicated to the DC business, as well as some of the larger organizations, will spend the money and will have the resources to figure out how to comply. But what about the smaller B/Ds? In the past, some have indicated that they would exit the DC business entirely, but the DOL fiduciary rule affects IRAs as well, so exiting is not a viable alternative, if it ever was.

Consequently, some Elite Advisors, especially those that do not do wealth management, see an opportunity to partner with smaller B/Ds to partner with their advisors on DC plans. It makes sense — offer real, not robo, fiduciary services while helping the initiating advisor preserve the IRA rollover and wealth management business.

But like many opportunities, even those that are compelling and make sense, reality sometimes gets in the way. First, B/Ds will probably be very reluctant to partner with outside advisors, especially if their compliance departments are making the decision. Maybe the Elite Advisor could join the B/D, but that limits them to only one potential partner and puts them under the B/D’s compliance scrutiny. Secondly, recommending another advisor is likely to be considered a fiduciary act. And lastly, is there enough revenue to share between the recommending advisor and the fiduciary advisor?

Other opportunities which seem to make sense but have been difficult to realize include Elite Advisors moving down market, where margins are higher, using a MEP-like format and simple investment menu; and plan sponsors using the “ideal plan.”

Beyond the compelling logic of both, reality has slowed their progress.

So is there an opportunity for Elite Advisors with the DOL rule, especially for pure RIAs that don’t do wealth management? Yes, but more likely with other RIAs that only dabble in the DC market. RIAs which have decisionmaking authority and are looking to exit a business with low margins and high liability that could threaten their other more lucrative businesses might actually pull the trigger. But probably not small B/Ds, particularly if the decisions are made by lawyers and compliance personnel, who have more interest in liability than viability.

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