DOL Fiduciary Rule May Hit Advisor Pay: Raymond James CEO
The Department of Labor’s new fiduciary customer-care rule is likely to hit compensation earned by financial advisors, Raymond James Financial Chief Executive Paul Reilly said Thursday.
The St. Petersburg, Florida-based company, whose brokerage force climbed 6% in the past year to a record 6,765 advisors as of March 31, is working with lawyers and consultants to understand how the complex rule will affect the company, its financial product providers, its clients and its brokers.
“At the end of the day I don’t see anyone in the chain” who will not be affected, Reilly told analysts on a conference call to discuss the St. Petersburg, Florida-based firm’s 18% jump in fiscal second-quarter earnings, which was driven largely by higher interest income connected to rate hikes. “I don’t think it will all fall on the company.”
He did not elaborate on how the rule, which requires advisors to put their clients’ interests ahead of their own when discussing retirement account rollovers and selling related services and products, would affect compensation.
Generally, it prohibits charging commissions for retirement products unless firms sign contracts giving clients the right to participate in class-action suits if their best interests are neglected. “I’m sure there will be rising costs but there is only so much we can do,” Reilly said.
The rule, which will be phased in from next April through January 2018, may force Raymond James to cut off clients with small accounts who want advice out of fear that a slip could bring a lawsuit, Ryan said. But he also asserted that the company’s aggressive campaign to hire brokers in its branch and independent channels and to acquire smaller firms continues unabated.
The recruiting outlook, particularly in the independent channel, is “very solid…as good a pipeline as we’ve ever had,” Reilly said.
Some brokers who are heavily concentrated in retirement accounts may delay moving until they determine if they will have to “repaper” commission accounts into fee-paying accounts because of the rule. Raymond James itself is looking closely at each prospect’s book to determine how much it is flavored by IRA accounts that could become less profitable, Reilly said.
Asked whether the potential profit-eroding effect on fees and commissions of the DOL rule could be mitigated by having more clients in fee-based accounts that produce stable revenue, Reilly was skeptical.
“Even moving [clients] to fiduciary is a BIC event,” he said, using the acronym for the DOL’s Best Interest Contract requirement. “There is no free lunch. The problem in the rule is you are almost caught no matter what you do.”
The former accountant, who had been one of the most vocal opponents of the initial draft of the fiduciary rule, nevertheless said that the final rule “is a little better” than he had first feared.
“No one fully understands the full impact yet,” he said, but ”I think we’ll come through it fine.”