DOL Fiduciary Rule Levels the Recruitment Playing Field Between Small Firms and Wire House Broker Dealers

RICHMOND, Va., May 24, 2016 /PRNewswire/ -- When the Department of Labor (DOL) announced its new final fiduciary rule, intended to help ensure that Americans get investment advice that is in their best interest, a portion of the 1000-plus page document cited references to "recruitment compensation." This phrase refers to the lucrative bonuses advisors receive as an enticement to leave their current firm and join another.

This is not the first time regulators have expressed concern over recruitment incentives. The Financial Industry Regulatory Authority (FINRA) has recently made efforts to require disclosure of said incentives to customers as part of the transfer process, but to date, those efforts have not made their way through the rule-making authority board.

Under the new DOL standards, traditional and independent advisors switching firms and receiving a large upfront check to do so may be required to justify that move as it applies to retirement accounts, meaning the burden of proof would be on advisors to demonstrate how their customers will benefit from an advisor's decision to change firms.  

This could forever change the way companies hire financial advisors. In an ever-increasing competitive recruiting environment, the cash sign-on bonuses offered by large banks and wire house broker dealers have soared to astonishing highs. Those checks, however, come with pressure to meet ambitious production goals. Furthermore, advisor payout grids are often tied to certain product types, meaning that advisors earn more when selling specific products—a model that will further challenge those seeking to justify how their customers benefit from a firm change.

Mark Hamby, President of Capitol Securities Management, Inc. said: "When it comes to recruiting advisors, the new fiduciary ruling has the potential to be a game-changer between large and small firms. As a privately owned advisory firm and broker dealer, we don't compete with the big checks large wire houses issue as recruitment incentives. Instead, we attract talent by offering an advisor-friendly corporate culture and lifetime payouts that are normally 50% higher than the big firms. We also offer reasonable transition packages tailored to each individual's needs. Additionally, we have a dollar-neutral payout grid, meaning that no product offers more financial incentive than another. This ensures that advisors can select products that are truly in their clients' best interest."

Hamby added: "If this new ruling impairs the ability to offer 'the big check', firms that have based their hiring practices around it will be left scrambling. As the rule is rolled out in the coming months, everyone in the industry waits to see how it will be enforced. Meanwhile, smaller firms like Capitol Securities are poised to offer packages that both appeal to financial advisors and comply with the new ruling."

SOURCE Capitol Securities Management, Inc.

Related Links

http://www.capitolsecurities.com