Los Angeles partner Fred Reish was quoted in a Financial Times article titled, “Proposed rule by US Department of Labor could put an end to commission.” The article discusses the recent proposal by the DOL that would classify most financial advisers as fiduciaries. Commission-based advisers would be required to sign “best-interest” contracts, agreeing that they will put the best interests of the client before their own personal financial gain, and commission-based adviser and broker-dealer companies would have to invest resources in educating their advisers on how to comply with the regulations.
Fred said that problems would surface for advisers who charger higher fees to IRA customers. “If you charge more in the IRA than in the plan, then the recommendation that [participants] take a roll-over with you could be a prohibited transaction, he said. “With their business model and overheads they can’t afford to do the small accounts.”
Fred says that, ultimately, the small broker-dealers would be the most negatively impacted by this rule, as they would not be allowed to give their advisers incentive payments for certain investment products.
“Effectively, the rule would almost make the adviser fee-for-service, rather than commission [-based], which is huge,” he said.