“They can maintain their compensation structures and at the same time control what it is their advisors are doing in the field,” he says, noting broker-dealers spend vast sums on arbitration costs because clients sue a firm based on what their advisor told them to do. “With the computer model that goes away,” Harvey says.
Broker-dealers have long resisted regulatory efforts to impose a fiduciary standard on their financial advisor reps. ERISA 408(g) allows broker-dealers to attain fiduciary certification while enabling broker-dealer reps to engage in sales and service activities. “Our computer model is a fiduciary,” Harvey says the firms can say. “But our guys are not there to provide investment advice; they deliver the investment advice that comes out of the [computer program].”
In other words, advisors can capture the flow of funds occurring every day when people take distributions out of their 401(k) plans as they retire — if that is consistent with the certified and annually audited computer model’s unbiased investment recommendations.