Since the Department of Labor offered Proposal 1.0 of The Fiduciary Rule back in 2010, the industry has suffered whiplash amid numerous efforts to update and improve advisor quality, transparency and investor expectations. Over a decade later, “suitability,” “best interest” and “fiduciary” have become all but household phrases, yet many argue there is still little clarity and even less confidence that improvement has actually been effected through the SEC’s “Regulation Best Interest.”
So how might an advisor address investor skepticism or the potential conflicts of interest in their own compensation model compared to alternatives?
A 2006 whitepaper by John Robinson examined three main advisor compensation models and suggested looking at all the incentives in each model.
Although a lot has changed since 2006, Robinson’s work remains relevant, finding that while conflict of interest may never be removed entirely, there are benefits to each model for the right client situations.
The full original paper is linked above, in case you can’t wait! Otherwise, we’ll break down each of the three models and summarize the trade-offs Robinson outlined in the next Advisor View!
In the meantime–cheers to the official start of summer!
Christy Charise, Founder & CEO of Strategic Advisor
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