New Fiduciary Rules Are About to Phase In and They’re Going to Wreak Havoc on Wall Street

It’s over for you advisorfags, making all sorts of unseemly money in variable annuities, IPOs, bonds — deploying ravenous sales tactics to finance your lurid lifestyles. The new fiduciary rules are about to be eddied in, starting June 9th, which means you’re completely, and irrevocably, fucked.

Here is a refresher, in case you dregs forgot.

The Department of Labor’s definition of a fiduciary demands that advisors act in the best interests of their clients, and to put their clients’ interests above their own. It leaves no room for advisors to conceal any potential conflict of interest, and states that all fees and commissions must be clearly disclosed in dollar form to clients. The definition has been expanded to include any professional making a recommendation or solicitation — and not simply giving ongoing advice. Previously, only advisors who were charging a fee for service (either hourly or as a percentage of account holdings) on retirement plans were considered fiduciaries.

Fiduciary is a much higher level of accountability than the suitability standard previously required of financial salespersons, such as brokers, planners and insurance agents, who work with retirement plans and accounts. “Suitability” meant that as long as an investment recommendation met a client’s defined need and objective, it was deemed appropriate. Now, financial professionals are legally obligated to put their client’s best interests first rather than simply finding “suitable” investments. The new rule could therefore eliminate many commission structures that govern the industry.

Advisors who wish to continue working on commission will need to provide clients with a disclosure agreement, called a Best Interest Contract Exemption (BICE), in circumstances where a conflict of interest could exist (such as, the advisor receiving a higher commission or special bonus for selling a certain product). This is to guarantee that the advisor is working unconditionally in the best interest of the client. All compensation that is paid to the fiduciary must be clearly spelled out as well.

Do you have any idea how far FINRA will be up your ass in about 1 year from now?

As a result of these changes, Morgan Stanley, Merrill Lynch and UBS are no longer interested in hiring new brokers, especially paying them 300% of their trailing 12 as a sign up bonus.

The Department of Labor instructed banks that the exorbitant sign up bonuses would conflict with the new fiduciary laws (lolz, so fucked) and they needed to coalesce, mind you, around client needs. Plainly, firms shouldn’t encourage advisors/brokers to hit sales targets anymore — since they run counter to the client. The days of the large sign up bonuses are over. A new era of austerity, and low 7 figure incomes, is upon you, Mr. Wall Street.

“Going forward, we intend to increase the investments and resources supporting our existing talent and platforms even further and significantly reduce experienced adviser recruiting,” said Morgan Stanley

Without question, the bluebeard’s who run these firms will now switch towards spending resources on retentions and cultivating talent, rather than deal with recruiters to fish out greedy strumpets in search of garish sign up bonuses.