One of the unintended consequences of the Dodd-Frank debate over a fiduciary standard for brokers and the Department of Labor's initiative to expand an ERISA-like fiduciary standard to brokers who "advise" on rollovers into IRAs has been to encourage a substantial number of independent advisors with a BD affiliation to consider transitioning to a 100% RIA business model.
In conversations we've had with some of these advisors, their first—and often, only—question is: "Will becoming a fiduciary RIA significantly boost my business?"
Our virtually universal response is: "You're asking the wrong question." In part, that's because their question is based on a number of misconceptions about both clients and the advisory business itself. But it's also based on a fundamental misunderstanding of the financial services business.
First, let's talk about the misconceptions. At the top of the list, probably due to the press coverage that Dodd-Frank and the DOL have gotten, most brokers seem to believe that switching to a fee-only fiduciary model will make them look like the "good guys" in the eyes of existing and prospective clients. If you're one of these, I'm sorry to burst your bubble by telling you it ain't gonna happen.
From what we've seen, despite the press about the fiduciary issue, there still isn't one retail investor in a thousand (and that's probably low) who understands what a fiduciary standard is and why it's important, or that a broker, when acting as a broker, doesn't have a fiduciary obligation. Consequently, you're not likely to get much, if any, marketing bump by making the transition—at least in the short term. And, as I think you'll quickly see, having a conversation with your existing clients in which you tell them "Now I'll have to act in your best interest," probably isn't going to have a positive effect either.
The other misconception that registered reps usually have is that a fee-only RIA firm is more efficient (more profitable) than their current independent advisory firm (or in-house brokerage team). The short answer is that they aren't—again, at least not in the short term—and you don't have to be Warren Buffett to figure out why.
