Financial Opinion and Insights

IRA Advice Could Change!

Jim Lorenzen, CFP®

Jim Lorenzen, CFP®


Brokers and registered investment advisors (RIAs) have been swimming in the same waters for many years; and, indeed, the investing public is very often confused about the difference between the two.  

Compounding the problem, of course, is that many in the financial services field call themselves `financial advisors’ without being registered as advisors, just as many call themselves `financial planners’ without having earned CFP® or ChFC® certifications. 

If that isn’t enough, many investors are also unaware that the so-called `broker’ they deal with is really not the broker!   This person is virtually always a registered representative working for a broker-dealer (the firm), if an employee or under the supervision of a B/D if an independent. 

That’s not all – are you getting dizzy, yet?  Many `brokers’ work for or under the supervision of firms which are `dually-registered’ as both broker-dealers and as registered investment advisors!  

Back to square one:  The individual investor, who often doesn’t know the difference between RIAs and brokers, also has to figure out why it matters!  I’ve written about this before; but change may be on the way, if the Department of Labor has it’s way. 

New regulations proposed by the DOL could change the landscape dramatically for registered representatives (RRs) of B/D firms in serving the $4.1 trillion IRA market by, practically speaking, excluding dual registrants – which is almost all of them – from giving advice on IRAs. 

While most of the attention has been focused on the regulation’s potential impact on the 401(k) market; but, the bigger impact may be on IRAs! 

Under the DOL proposal, advisors who advise clients on IRA accounts would, for all practical purposes, be fee-only advisors in that the new regulations require that the advisor give advice that’s either generated by a computer model, or give advice and be paid on a level-fee basis, which means that the fees don’t change because of the investments selected.  This is something RIAs do now, but many B/D firms are resisting. 

The prohibition against advising on an IRA kicks-in if a commission is paid on any assets under management by an advisor.  It appears the DOL is trying to avoid situations in which an advisor gets a hidden incentive or compensation from a fund company or the B/D firm for steering assets into a particular investment product. 

The proposed 401(k) regulations would do the same thing, except there’s a grandfather clause that allows B/D firms to maintain their existing agreements. 

It appears, under these proposed DOL regulations, B/D registered reps who advise on IRA assets would have to register a investment advisors and act as fiduciaries – and that’s a major shift because it would prohibit an advisor on IRA plans from collecting any 12b-1 fees, commissions, or sales loads on IRA assets. 

Stay tuned. 



The Independent Financial Group is a fee-only registered investment advisor embracing a fiduciary standard and does not sell any investment products or receive any third-party compensation in any form.  Opinions expressed in this post are those of the author and are not intended to provide investment advice.   Learn more about IFG!