In “DOL Warns Firms About Conflicts Lurking in Payout Grids,” Financial Advisor Magazine shared comments from benefits and executive compensation partner Fred Reish about Department of Labor (DOL) concerns over escalating payout grids for dually registered advisers, including how they might encourage financial advisers to push one product over another
According to Reish, “In effect, the DOL is saying that if one investment pays more to the firm, and another pays less, and the firm passes through a set percent of the commission to the investment professional — say 80% of 8% for one product versus 80% of 4% of a different product — the firm has, in fact, created an arrangement that passes its conflict on to the financial professional.”
Regarding how firms can curb this kind of implicit conflict, Reish said, “One obvious answer is to levelize the investment professional’s compensation, regardless of which investment is recommended. While that should effectively mitigate the conflict, it may not be a practical ‘solution.’”
Reish also stated that firms could also use “neutral standards” for determining the compensation, such as paying an adviser twice the amount of a commission when they have had additional education and have taken twice as long to explain a product to an investor.