Banks Strive to Thread the DoL Fiduciary Advice Needle in a Way That Allows Them To Retain Small Accounts

Wealth management operations at banks are burning the midnight oil to devise ways to bring all investment advice involving retirement money into compliance with the Department of Labor’s new fiduciary rule. 

By Robert Stowe England
Raising fiduciary standards for investment advice across a banking organization creates a strategic challenge. How do you thread the needle of compliance while still also making sure that customers of the bank with smaller retirement account balances are not lost in the shuffle?

First of all, you clearly make it a goal that you intend to retain your wealth management clients, both large and small, according to JoAnn Schaub, manager of institutional wealth management at BOK Financial Corporation of Tulsa, Oklahoma with $71.9 billion in assets under administration.

The advent of the rule itself provides an opening, a silver lining of sorts. “It gives us an opportunity to sit down with our clients and evaluate where they are,” says Schaub, “What are their retirement goals? Where are they today? What should they be doing differently? What is in their best interest?”

Face it. People saving for retirement do need financial advice so they do not make some of the classic errors people tend to make, such as selling stocks in the middle of a panic like the one in 2008, notes Joan Warner, managing editor and senior analyst for Financial Services at Oxford Economics. “Human beings are hard wired to buy high and sell low,” says Warner. “Whatever made us good at escaping from a saber tooth tiger makes us terrible investors. That’s why we need financial advisors to help us with our investing discipline.”

A common solution for banks with broker dealer operations is to shift larger clients to the bank’s registered investment advisors (RIAs) while offering a robo investment advice solution to smaller accounts that require “less hand holding,” according to Betty Moon, principal at Moon Consulting Group, Charlotte, N.C. Even with those options, a lot of wealth management clients could fall through the cracks. “That means you are going to have to fix compensation and that is going to be difficult,” says Moon.

Some banks will continue to sell commission-based funds in Individual Retirement Accounts (IRAs), according to Scott Cooley, director of policy research at Morningstar. “So the advisor might have to do business a little bit differently but not as dramatically as switching to an RIA model,” says Cooley.  This will require disclosing commissions and managing the conflict to be sure the advisor always acts in the best interest of the clients, he adds.

Changing the compensation structure could also see an early exodus of commission-based advisors who are close to retirement age, Moon warns, further limiting the number of professionals who can provide investment advice. She points to the experience in Europe where new fiduciary rules effectively eliminated commission-based advice. “It was probably not because they were bad it. They just couldn’t make the transaction to a fee based model,” says Moon.

BOK Financial got an early start on its advice solutions just after the Department of Labor issued its April 2015 revision of the rule it first proposed in 2010. In response, Scott Grauer, executive vice president for wealth management and chief executive officer of the broker dealer, launched a steering committee to oversee working groups charged with developing plans to implement the new rule, according to Schaub.

Mindful of the potential to lose clients, BOK Financial would have to offer more retirement savings options than in the past, while retaining commission-based products for clients where that was appropriate, says Schaub. Robo investment advice is one of the new solutions the bank will offer clients that indicate they would prefer a digital option.

The tougher question for BOK Financial has been what to offer people with smaller retirement accounts who want to talk to an advisor. For these clients, BOK Financial plans to offer level fee managed accounts to clients with as little as $10,000 to invest, according to Schaub. This option exists because the bank’s broker dealer has a registered investment advisor (RIA) through which it can offer managed accounts.

Five years ago BOK Financial made it a priority to position its wealth management business to offer managed accounts. This move was made in part because the bank expected the world of investment advice to shift away from commission products to level fee products, according to Schaub.

Offering only a robo solution will not work for all people with small accounts so banks will need other solutions that provide personal advice, according to Rhomes Aur, executive vice president for wealth management at First Tennessee. “Millennials and GenXers that are just now growing their net worth. If you ignore those people today, twenty years from now they’re going to have all the money and the banks aren’t going to have clients,” says Aur. “We can’t just say we’re not going to deal with these clients because it’s not worth our while right now.”


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