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Mitch Anthony's Intuitive Advisor

The Practice Doctor is IN

Compliance Complications

by Al Depman, CLU, ChFC, CMFC, BH
Practice Management Consultant

Al Depman photoAs you might imagine, much of my consulting conversations lately have been revolving around the Department of Labor's pending fiduciary standard being applied to financial advisors who work with client retirement funds. There seem to be three prevalent responses to the legislation:

  1. Angst and hand-wringing about "more regulation and paperwork."
  2. Annoyance but resigned acceptance.
  3. Fear and loathing of a way of life being disrupted.

Let's look at each.

1. Angst and hand-wringing about "more regulation and paperwork." This comes from those in the financial services business who have accumulated thousands of orphaned clients. Why? Blame the seriously broken advisor/agent recruiting techniques promulgated over the decades. The four-years retention rate of less than 20 percent of the sales force pretty much ensures a constant flow of churning small-to-medium IRA retirement rollovers. New advisors sell to friends and family, decide to exit the business, and leave the accounts in the care of the parent company. The parent company then begins the cycle of assigning these orphaned accounts over and over to new advisors who contact them in hopes of generating new business.

Imposing a fiduciary standard on these thousands of small cases will be a nightmare for these companies. It's hard to build much sympathy for them, however. This is a result of sloppy, self-perpetuating recruiting shortfalls. Perhaps this DOL kick will be the one that finally changes the pattern to a more sustainable and responsible advisor onboarding process.

2. Annoyance but resigned acceptance. This is the response of a majority of advisors I work with, those who have been striving to follow best practices and apply the fiduciary standard to their clients as a matter of ethical course. These advisors realize there are bad apples (see next category) and are not happy about having to pay for their sins. They will grudgingly do whatever it takes to increase the public profile of their brand. It can also be a positive. When clients see that their advisor has always been in compliance with their best interests, the refer-ability of that advisor increases.

3. Fear and loathing of a way of life being disrupted. Herein are the aforementioned "bad apples." I have documented these people in this column in the past—the one-interview sales masters who might well create the illusion that the sale they make is "suitable at the time of the sale." They provide no follow-through, mail the annuity or opening account statement, and do only what is necessary to keep the communication lines open until there is an opportunity to roll the money once the surrender charges have expired. Some of these representatives move lots of product, are recruited by aforementioned companies with substantial bonuses, and leave in their wake a mess of orphaned accounts and/or legal wrangling. Needless to say, I have little compassion for these salespeople (note that I'm not using the term "advisor" here). What will probably happen is that they will spend vast amounts of time exploring ways to circumvent the new rules. What they ought to be doing, of course, is spending that time fixing their processes so they are less sales and more advising.

A final note on all of the above. The DOL and SEC need to have an awareness that a fiduciary standard might lead to a "compliance mentality." This is the result of placing too much of an emphasis on compliance to the detriment of quality, ethical advice. The "compliance mentality" is characterized by "ethical fading" in which excessive attention on rule-following diminishes the moral aspects of a client's financial situation.

This phenomenon is characterized by paranoid compliance departments deciding an advisor's actions are "wrong" because they violate the rules and not because they violate our ethical obligations. Once the ethical concerns of a situation have been "faded out," in the face of compliant rephrasing and attention to minutia, it is very difficult for advisor and client to refocus their attention and make ethical features of the action the primary focus of the transaction. This leads to a situation where rules pile upon rules, creating a feeling of a "heavy compliance burden."

Will we, as a profession, emerge from all of these changes smelling like roses? I believe the best of us certainly will.

The Doctor is OUT

© 2016 Al Depman

Al Depman, CLU, ChFC, CMFC, BH, a.k.a. "The Practice Doctor", is's Business Practice Consultant, and contributor to "The Wall Street Journal." He is the creator of "The Practice Management Assessment" tool, the key component of The Business Practice Check-Up™, has authored numerous articles in professional publications on practice management, and is the author of the book, How to Build Your Financial Advisory Business and Sell It at a Profit, available from McGraw Hill. Al combined his Liberal Arts studies with 10 years of management experience with McDonald's Corporation to enter the financial services world 25 years ago. Since then, Al has evolved from an MDRT-level sales rep into a full-time consultant specializing in helping others engineer their business practices to the next level. Contact him at

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