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By Rick Kahler

Both fee-only financial planning firms and companies that sell financial products are beginning to see some unintended consequences from the recent Department of Labor fiduciary rule.

The rule requires that all financial advisors who deal with an investor’s retirement accounts, including those who sell products, be held to a fiduciary standard. In the past, only RIA’s who are regulated by the SEC were held to such a standard.

The DoL intended the rule to discourage financial salespeople from placing high fee and commission products in retirement accounts. For fee-only advisers, one unintended consequence is an increase in documentation and paperwork, which increases the cost of doing business.

Another unintended consequence that could actually end up hurting consumers may be on the issue of churning.


Churning describes a broker excessively and needlessly making a lot of trades in a client’s account to generate extra commissions. FINRA, the agency that oversees the sale of financial products, has long discouraged churning, though often the practice only comes to light when a consumer files a complaint.

Still, regulators’ success in discouraging churning has given rise to fee-based brokerage and wrap accounts. These accounts do not compensate brokers on the number and frequency of transactions, but on an ongoing management or advisory fee. It can be a flat fee or one that is determined by a percentage of the assets in the account. This mode of compensation takes away a broker’s incentive to churn accounts. That has to be a good thing, right? Well, not necessarily, if you are a regulator.

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