DALBAR Announces Test to Limit Compensation Cuts

Boston, Nov. 07, 2016 -- Press Release

Dalbar Announces Test to Limit Compensation Cuts

Fiduciary Rule Promises $34,000 Cut from Unreasonable Advisor Pay

(Boston, MA, November 7, 2016) The Department of Labor Fiduciary Rule (“Rule”) that takes effect April 2017 contains a compensation limitation that is promised to save investors $17 billion in reduced advisor fees each year. If these cuts take place the average advisor will see a $34,000 reduction in compensation. These cuts will affect every advisor who has IRA or ERISA plan clients!

With the threat of such massive compensation cuts next year, every advisor should determine how adopting the new Impartial Conduct Standard of the Rule will affect him/her. The potential for cuts exists in every alternative of the Fiduciary Rule.

The most meaningful and generally accepted method of assessing the reasonableness of fees is based on the cost of doing business plus a profit. While this profit based approach to determining a reasonable fee may be new to financial advisors, it is centuries old and used by virtually every other profession. Most importantly, the method adopted by Dalbar is based on the Gartenberg Standard and is consistent with the Fiduciary Rule.

The Dalbar Compensation Compliance Test (“Dalbar Test”) approach ensures that each client bears a fair share of the advisor’s cost and profit. Reasonableness is defined as the compensation that covers the costs of doing business, while passing savings on to clients. The Dalbar Test may be accessed at www.compensation.dalbar.com.

Advisors who simply compare compensation to a peer group average are certain to suffer the average loss. The Dalbar Test is the alternative to this suicidal approach. The Dalbar Test meets the requirement of the Rule by applying the cost and profit of operating the advisor’s business to each client. The result is to make every client profitable!

There will undoubtedly be clients that fall outside the bounds of reasonableness but the devastating effect of cutting compensation based on mere averages is avoided.

“The Dalbar Test puts the advisor back in control and provides a rational way to handle both high maintenance and high efficiency clients” said Cory Clark, a director at Dalbar, adding, “Advisors will be shocked to find that they have some clients that fail Dalbar Test because they are unprofitable!”

The Dalbar Test is available online at no cost when the Dalbar assumptions of rates and other factors are used. Advisors who subscribe to the introductory service ($350) are able to enter their own costs and variables.

Dalbar, Inc. is the financial community’s leading independent expert for evaluating, auditing and rating business practices, customer performance, product quality and service. Launched in 1976, Dalbar has earned the recognition for consistent and unbiased evaluations of investment companies, registered investment advisers, insurance companies, broker/dealers, retirement plan providers and financial professionals. Dalbar awards are recognized as marks of a superior standard of care in the financial community.

For more information on the Dalbar Test contact Cory Clark at [email protected] (617.624.7156).