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A great deal has been written about how financial advisor business models will change as a result of the DOL Fiduciary Rule. It is apparent that the Fiduciary Rule wasn’t written with the intent to match up with current business models. It seems it was actually written in anticipation of new business models that are already being designed and implemented.

Advisors seem to think that the Rule won’t have a large impact on their business, and some even believe it will have minimal to no impact. Industry experts have been quoted in the range of 10%-40% advisor attrition over the next four years as a result of the Fiduciary Rule. The latter statement certainly suggests that many perceive a massive industry overhaul is on the horizon. It’s not surprising how many advisors don’t see the Rule as a threat to their business. The average age of financial advisors across the industry is encroaching 60-years old, and yet very few advisors have a properly-drafted succession plan. This is such an issue that the SEC has made it an audit priority. Advisors seem to be very good at hiding their heads in the sand when it comes to change.

Most broker-dealers, especially those promoting proprietary products or those who have a culture of commission-based business, are pushing off the conversation altogether. The broker-dealers are so nervous they’ve even told product wholesalers not to discuss the details of the Fiduciary Rule with their advisors.

An extremely disturbing assumption is that an advisor can just “switch over” to running a fee-based business. Three resounding issues are present: First, the way fee-based business models are designed today won’t comply 100% with the DOL Fiduciary Rule, so significant thought and investment needs to be poured into which business model and pricing metrics are the best match for the advisor and their clients. Second, advisors will need to change their story to clients who they have been convincing that commissions were the way to go for years. This will likely create some credibility issues as well as some cash flow issues. If not properly articulated, advisors switching to fee-based models run the potential risk of inspiring their clients to “shop around” once they are presented with the fee-based alternative. Third, the longer an advisor waits to transition their practice, the more the transition is going to turn into a fire drill driven by a cliff-like loss of revenue.

Financial advisors need to view their practices and businesses and manage them accordingly. This goes beyond the “paper napkin” business plan and bridges into strategic planning. Businesses cannot rest on what they are doing today or how they performed in the past. They must constantly look to the future to see where their markets are shifting.