How one communication sent advisors and firms into a tailspin

Yesterday the DoL issued a set of FAQ’s relative to the new Fiduciary Rule mostly related to the BIC exemption. But, FAQ #12 specifically addressed recruiting deals and stated that the “large back-end revenue and asset awards which are expressly contingent on the advisor’s achievement of sales or asset targets can create acute conflicts of interest” and are in violation of the Rule’s intention.

As of this writing, Morgan Stanley is the first and only firm to come out with their response to the DOL’s position. Effective immediately, they have decided to eliminate all revenue and asset bonuses from their transition packages, even for advisors that had already committed to joining the firm in the near term. We are awaiting announcements from every other firm on the Street.

How will they will choose to interpret the DOL’s response and what changes will they make to their current deal structure?   

We believe that as wirehouse deals significantly decrease, regional firms and independence just became much more interesting as the playing field has been leveled.

We believe that because recruiting is critical to the major firms, they will need to creatively adapt to this new normal and increase upfront cash awards, replace more unvested deferred comp, and make their value proposition decidedly more interesting.

We believe that as the industry digests the DOL’s groundbreaking directive, things will normalize, firms will settle on a new structure for recruiting deals and we will go back to having conversations with advisors focused on what’s in the best interest of their clients.

For now, there are more questions than answers. I will continue to post as things develop and, certainly, please feel free to reach out to me directly.