Indie brokers move toward allowing advisers to be fiduciaries

Despite initial resistance, a few independent-broker-dealer firms have begun to allow their financial advisers to serve as fiduciaries, following pressure from the advisers themselves.
Although passage last year of the Pension Protection Act gave the green light to financial advisers’ also becoming fiduciary advisers for plan participants, broker-dealers rebuffed the idea because of worries about the fee structure changes that would need to occur, as well as the added liability to the firms. Some of those concerns still exist.
Nevertheless, adviser pressure pushed Linsco/Private Ledger Corp., of Boston and San Diego, to change its stance. The nation’s largest independent-contractor broker-dealer fielded phone calls from five to 10 advisers a week during a six-month period asking it to allow them to take on the role of fiduciary to plan participants.
RIA pressure
The advisers were feeling pressure from their registered investment advisory competition, said John MacGregor, senior vice president of retirement services at LPL.
“We had numerous calls from advisers,” he said. “That’s when I opened my eyes and said, this is something we need to look closely at.”
Other independent-broker-dealer firms are moving forward with similar programs. Some are silently working on programs and haven’t made official announcements; others have been public about their plans.
National Retirement Partners LLC in Capistrano Beach, Calif., and Raymond James Financial Inc. of St. Petersburg, Fla., already allow their advisers to be fiduciaries in certain cases.

Broker-dealer firms have to follow different requirements, depending on whether they allow their advisers to serve as fiduciaries to the plan sponsor and the retirement plan or to serve as fiduciaries to plan participants.
Some broker-dealer firms are more comfortable allowing their advisers to serve as fiduciaries to the plan sponsor on a case-by-case basis. Others are more comfortable allowing their advisers to serve as fiduciaries to plan participants.
LPL launched its program on Sept. 1, and so far, 25 advisers have enrolled in the process to become fiduciaries, which entails online classes and an examination. It will likely take each adviser about four to six weeks to complete the process, Mr. MacGregor said.
He said that as many as 500 advisers out of about a total of 10,000 at the firm could be enrolled by the end of the year.
In the past, LPL allowed its advisers to be fiduciaries to plan sponsors. Once it added this provision, the firm purchased fiduciary insurance.
Insurance has been a key issue, said Louis S. Harvey, president of Boston-based Dalbar Inc., which provides education about fiduciary matters to many advisers.
He said that in the past, it was difficult for firms to get insurance. Now, insurance is more readily available, and firms feel that they must consider offering this option to their advisers.
“The reps are feeling pressure from RIAs,” Mr. Harvey said. “If the firms don’t move, and let their reps do this, then the RIAs will simply take over the market at both the plan level and the participant level.”
It is no surprise that broker-dealer firms have been dragging their feet on this issue, said Fred Reish, managing director of Reish Luftman Reicher & Cohen, a Los Angeles law firm. His specialty is employee benefits law.
Fee issue
“Who wants to sign on as a fiduciary? You’re held to a higher standard of care. No one would naturally want to do that,” Mr. Reish said.
“The pressure is coming from the RIAs who are agreeing to be fiduciaries,” he said. “Financial advisers want to be able to carry the same big guns into the meeting as the RIAs.”
Mr. Reish said that the most complex task for broker-dealer firms is that their representatives must receive level fees to offer fiduciary advice. Most broker-dealer firms have a commission-based structure, which doesn’t allow advisers to be fiduciaries.
Even broker-dealers that have begun to allow their reps to serve as fiduciaries in certain cases have concerns.
Bob Francis, chief operating officer of National Retirement Partners, said that his firm allows only a few advisers to serve as fiduciary advisers to plan sponsors.
“It’s on a selective, voluntary, very strict basis,” he said.
Mr. Francis feels more comfortable allowing advisers to serve as fiduciaries to plan participants, which was outlined in the Pension Protection Act.
“I think the Pension Protection Act clearly defined how it works. It’s in a nice tight box, and everyone gets it,” Mr. Francis said.
National Retirement Partners has allowed 12 of its member firms to serve as fiduciary advisers to plan participants.
Meanwhile, Bo Bohanan, director of retirement plan consulting at Raymond James & Associates Inc., said that he has concerns and questions about the specifics of the annual audit, which is required for advisers who give participant advice.
The Department of Labor has yet to release its standards on the audit, and he doesn’t want to allow his firm’s advisers to begin offering advice to participants until it does.
Case-by-case basis
“I’ve got issues with it,” Mr. Bohanan said. “I don’t think it’s clear. Most people you talk with say they don’t know how comprehensive the audit is going to be.”
But his firm does allow its top advisers to serve as fiduciaries to plan sponsors on a case-by-case basis. Typically, the minimum plan size is $10 million assets.
“We want to make sure the adviser has sizable experience,” Mr. Bohanan said.
“I don’t think plan sponsors understood they had a fiduciary liability,” he said. “They’re slowly pushing toward that issue.”
Lisa Shidler can be reached at [email protected].