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Are Regulations Too Onerous For Advisors To Stay In Business?

Whether it’s responding to urgent phone calls over Thanksgiving, or flying six hours cross-country to be with clients who have lost a spouse, there are few things a dedicated advisor would not do for a long-time customer. The extra hours cement strong relationships...



Whether it’s responding to urgent phone calls over Thanksgiving, or flying six hours cross-country to be with clients who have lost a spouse, there are few things a dedicated advisor would not do for a long-time customer. The extra hours cement strong relationships.

But the time spent addressing regulations is another story. Regulations require attention to detail and large volumes of paperwork. For this, advisors do not receive compensation.

More advisors are struggling with the burdens of regulation, which are tugging at advisors in multiple directions, said Ted LeClair, senior vice president in the Client Solutions Group with Natixis Global Asset Management.

Though more rules aren’t new, and neither are complaints about them, the Dodd-Frank Act meant to protect investors from the dangerous excesses of the financial services industry has increased regulation significantly.

Many of the new burdens are coming from the internal rules instituted by broker-dealers interpreting the Dodd-Frank Act, LeClair said. That is forcing some rearrangements within broker-dealers as they reposition advisors to work with compliance experts.

“Dodd-Frank is affecting broker-dealers the most. It’s affecting the person that is taking on fiduciary responsibility,” LeClair said in an interview with InsuranceNewsNet.

Proponents of regulation say the rules were necessary to protect individual and institutional investors, and that the depths to which the nation sank during the Great Recession only proves the importance of strict government controls.

Still, some advisors are wondering whether it’s worth continuing in the business if they don’t have the time to go out and solicit new clients, let along younger ones. The chance to help younger clients build a financial future is what drew many of them to the industry.

Many are asking, “where’s the future client going to come from?” said LeClair, who is also director of the Natixis Advisor Academy.

A survey by Natixis conducted earlier this year found that financial advisors spend almost twice as much time on administrative tasks as they do looking for new clients.

Nearly one in two (43 percent) advisors say they are not actively seeking new and younger clients, although 76 percent of advisors say their business has grown over the past several years, according to the Natixis Global Asset Management 2013 Global Financial Advisor Survey.

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Clients older than 46 years old make up 78 percent of an average advisor’s book of business so the need to renew the client pool is pressing. But with so much regulation, where’s the incentive for advisors to go out and prospect for new blood, LeClair and his colleagues ask.

“As demands from existing clients grow, advisors are finding it difficult to balance that work with marketing efforts to attract new business,” John T. Hailer, chief executive officer of Natixis Global Asset Management, said in a news release.

Two-thirds (65 percent) of advisors said their biggest challenge in acquiring new clients is a lack of time, and 25 percent of advisors said they have difficulty building trust quickly, the survey also found.

LeClair, who works with 56,000 advisors in the U.S., has plenty of examples of advisors burdened by regulation. One sticks out in particular.

In a Western state, one advisory practice employs as many as seven staffers just to deal with compliance and administration, and only two employees actually are involved in advising and planning the financial future of the firm’s clients, LeClair said.

Neil L. Goldberg, principal of the wealth advisory group GW & Wade in Wellesley, Mass., said in a prior interview that the company had recently hired a new chief compliance officer to bolster its compliance department.

LeClair expects to see some “consolidation” in the industry. He said that more regulation, stiff competition among advisors, increasing specialization, and baby boomer advisors looking to exit the industry will lead to a lot of buying and selling in the near future.

Many retail financial advisors work with two or three other employees, and either some will merge with or sell their practices to larger advisors, or get help with regulatory and compliance responsibilities by joining broker-dealers with reputable supervisory oversight.

is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at

© Entire contents copyright 2013 by Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from


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