Warren: Some speculate that many
retirement investment advisors will
dispense with commissions altogether,
charging a flat annual fee for services
so as to avoid the myriad requirements
in the best interest contract exemption
provisions. Do you agree?
Chip: While that’s certainly possible while
some advisors move to that platform, that
doesn’t help — and again are we looking
at what is best for the American people?
What is best for the client? That doesn’t
help the client in this situation. It’s been
proven over and over that a fee charged
every year to the client, even a 1 percent
fee vs. a 5 percent upfront commission,
which doesn’t come out of the client’s pocket by the way, that
5 percent commission comes from the insurance company
paid to the agent of the registered rep. But a 1 percent fee
over a 15-year period of time, out of the client’s account vs.
the 5 percent one-time commission is much higher. And as
that client’s account grows, that fee continues to grow from
the advisor even at a 1 percent fee.
If you look at variable annuities or mutual funds with management fees and other expenses that those fees have, over
the years those fees per year are much higher and that does
not benefit the client.
Warren: It’s an interesting point you’re raising. The DOL, I
understand, implemented this rule in part to reduce costs
to the consumer, but you’re suggesting even the opposite
might be the case over the long-term.
Chip: Clearly, and it doesn’t take a mathematical genius to figure that out, frankly, and I’m kind of surprised that the DOL
is pushing in that direction.
Pam: I was just going to say, we made that point to them in
our comment letters that we submitted last summer.
Chris: I think one of the things you have to consider with
the whole fee-based question is probably a third of the distribution with National Western Life would have the ability
to transfer to a fee-for-service model. The rest of the guys
depend on heaped commissions to pay their bills and the
transition is just not going to be possible for everybody.
Warren: I think you said a third of your advisory workforce
might navigate over to fees from commissions. Are we
talking largely about veteran advisors who have been in the
business for “x” number of years and have already been
looking to transition to a fee-based model or are there other
factors at play?
Chris: I think asking some-
body who has been an insur-
ance professional their whole
life to change the way in which
they bill and receive compen-
sation for their business is a
tall ask and I think it’s going
to be a major burden on a lot
of people who make a living
helping the American public
with their insurance needs.
Marvin: I come from a
unique background in that
I started out at a huge Wall
Street company here in St. Louis with over 12,000
advisors. I’m an RA now and I’m also part of the
insurance world. But when I worked for the big financial Wall
Street company, initially they said that they would never ever
do fee-based. They basically painted fee-based as the devil
because they said it’s not the best thing for the client and they
argued that over and over and over.
They eventually transitioned more towards fee-based when
they got new ownership, but our biggest concern in that
particular broker dealer world was you’ve got a new person
coming in and they’re trying to feed their family, how can you
go fee-based? It’s tough to go fee-based unless the company
provided an upfront revenue for that particular person to
give them some incentive to continue to work under such a
I don’t think it’s going to be sustainable, especially for people dually registered or in a broker dealer world, to go more
towards fee-based. I do fee-based now, but at the same time,
I just find it really hard to believe that that’s going to happen.
People have to feed their families, people have to continue to
Now I do feel that people that don’t do much — like me
for example, I do commission-based a little now and I also
do fee-based, but I don’t do enough commission-based to
deal with the compliance hassle, so I’m actually going to stop
doing commission-based altogether. So I think people that
don’t do much, they’re going to transition where they don’t do
any commission-based at all. I think the people who are just
getting started, they have to do the commission-based just to
keep themselves sustained.
Bob: I have a different perspective. I think because for the
last five years I’ve been trying to build an RIA no-load annuity platform for the large $6 billion, $10 billion assets under
management RIA. Because one came to us asking us to try
and find this platform. I think we should have both markets
the way we do in everything else. But to answer your ques-
“You’re going to see
some people go the
whole way and get
You’re also going
to see a lot of
people leave the
business as a result
of the additional