The DOL Opportunity: Making Lemonade from Lemons

Note: This article is courtesy of

By Joseph Hosler

Within the industry, uncertainty around the DoL’s ruling prevails as advisors struggle to reevaluate their strategies, especially as it pertains to commission-based revenue.

It is estimated that the financial advice industry derives almost 45% of their revenue from commissions as of 2015. As a result, many advisors and their broker dealers have been thrown off balance by the new policy.

Though the impact of the new policies is large for the representative and the independent broker dealer (IBD), the law may act as motivation for firms to produce better outcomes for customers, a more dependable cash flow for advisers, and a more durable model for IBDs.  In the past, many IBDs have acted as product gatekeepers, compliance, and transaction accounting arms to advisers.  The expected increase in regulatory burden combined with continued pressure on commission revenue will drive the industry to a new operating model.

Though added regulatory burden is not new to the broker dealer industry, it is the opinion of many that the DoL ruling will be the most profound change experienced by the industry since the deregulation of commissions in 1975. Changes of this magnitude can make for a dramatic change in the composition of the winners and losers. In an attempt to make lemonade from lemons, IBDs can look to drive a higher level investment offering to advisers and their clients with hopes it results in increased fee-only revenue and a more durable relationship with clients.

The investment ecosystem has grown accustomed to delivering isolated products that serve a specific purpose and passing the burden of creating a durable and lasting investment solution onto the adviser.  Up to this point, this practice was acceptable, as representatives acted in a more transactional manner, even when they offered much more to the end client.  The structure trivialized the value that representatives were best positioned to provide, but this changes under the new ruling.

So where is the opportunity?

A forward-thinking IBD can act as an implementation arm for a rigorous and responsive investment workflow.  Through defining and applying best practices, the IBD can arm the adviser with tools and workflows that drive a better solution for the client, lessen the chances of non-compliance, and increase the productivity of their representatives.  A win-win-win approach.

IBDs should look at defining the major steps for representatives in order to institute best practices:

(1) Define the risk appetite and needs of the client,

(2) Have an offering that produces the desired outcomes at a low cost,

(3) Allow for the easy customization of a solution tailored to the unique needs of the client without risking unexpected exposures, and

(4) Do this all in a way that can be profitable.

Click here to read the full story on

This article was provided by our partners at ETFTrends.