DOL Fiduciary Rule Could Decimate Number of IBDs

November 20, 2015

Commonwealth executives predict that a combination of higher costs and less revenue will cause widespread consolidation in the industry

Nov 18, 2015 @ 12:33 pm

By Bruce Kelly

The Labor Department’s fiduciary rule could present a one-two punch to independent broker-dealers, leading to widespread consolidation that could cut the number of firms in the industry in half.

That’s the assessment of John Rooney, managing principal of Commonwealth Financial Network, a leading IBD. He made the observations during the firm’s annual meeting with advisers last weekend.

“Could (consolidation) be 50%? Sure,” said Mr. Rooney. “What’s the cutoff of viability for an IBD, $50 million or $75 million in revenue? There aren’t that many firms at that level, less than 100.”

The brokerage industry has been complaining for months that the fiduciary rule the DOL has proposed for retirement advice would drive up their costs.

“What is it going to cost us to comply with DOL,” Mr. Rooney asked. “It could be bad, or it could be truly awful.”


“I’m shocked there hasn’t been more consolidation,” said Wayne Bloom, Commonwealth Financial’s CEO. “I’m stunned it hasn’t happened already, based on the money we spend on technology and compliance.”

In addition to increased expenses, the DOL fiduciary could also impact the revenue side of the ledger by significantly curbing sales of high-commission variable annuities and alternative investments, including nontraded real estate investment trusts, the executives noted.

(More: SEC Chairwoman White says agency is ‘full-out’ working on fiduciary rule)

“We’re seeing a big pullback like everyone else in nontraded REITs and variable annuity sales,” Mr. Rooney said. “I’m really interested in seeing what happens to bank broker-dealers and insurance-based broker-dealers because the margin in this business is already thin, and if you take away a higher-margin product or a proprietary product out of that mix, those B-Ds don’t make any sense,” he said. “So, you could see a consolidation in this business, with both advisers and broker-dealers leaving this business.”

Meanwhile, the privately held Commonwealth Financial continues to see steady growth, said Mr. Bloom. The firm currently has 1,650 affiliated reps and advisers with close to $100 billion in assets under management. Commonwealth also could hit $1 billion in total revenues this year, a long-term goal, he added.

Original article taken from Investment News…

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