How Financial Advisors Get Paid: Reg BI, Advisory Fees, and Rollover Rules
A Decade of Regulatory Change: From Crisis to Today's Rules
Over the last twelve years, the government’s interest in financial advisor compensation has dominated the regulatory landscape. It began after the 2008 financial crisis with the Dodd–Frank legislation, which tasked the SEC with reviewing the two ways that financial advisors get paid: fees and commissions.
Next came the 2015 Fiduciary Rule from the Department of Labor, which aimed to require most advisors working with retirement plans (including IRAs) to act as fiduciaries and effectively mandate a uniform fee structure. However, that rule was struck down by federal courts.
Educators Upgrade Your Old 403b Plan
If you purchased a 403(b) annuity before the new rules, you may want to consider a new plan that could lower costs and potentially increase your returns. Either through a contract exchange if you are still working, or a rollover if you are retired.
Financial Advisor Tim Hayes
Today's Divided Standards: Reg BI vs. The Fiduciary Rule
Today, the regulatory landscape is divided. Regulation Best Interest (Reg BI) is fully implemented for broker-dealers, replacing the previous suitability standard. It requires brokers to act in a client’s best interest and disclose and manage conflicts, but it allows them to recommend a limited set of products and does not impose a fiduciary duty of ongoing care.
Meanwhile, the Department of Labor’s attempt to expand the Fiduciary Rule to cover all rollover recommendations was blocked again by courts in 2024. As a result, many one-time rollover recommendations are not currently held to a fiduciary standard. For those advisors who are fiduciaries (such as RIAs), current rules (PTE 2020-02) no longer require a level fee structure.
The DOL's "Second" Best Interest Standard
While the SEC’s Regulation Best Interest governs the standard of care for brokers selling products, the Department of Labor (DOL) maintains a separate, rigorous “Best Interest” requirement that applies specifically to rollovers of retirement accounts.
Under current rules (PTE 2020-02), any financial professional—whether a fee-only fiduciary or a commission-based broker—who recommends moving funds from a 403(b) or 401(k) into an IRA must adhere to Impartial Conduct Standards. This means they must provide a documented analysis showing that the rollover is in your best interest. That brings rollover advice close to a fiduciary requirement that the courts blocked in 2024.
I have worked with Tim Hayes most of my adult life (I am a senior citizen). I trust him so much that I have recommended him to my sister. You can’t go wrong with Tim.
Linda Wiegenfeld
Client
Testimonial Disclosure: Testimonials are based on individual client experiences and may not represent the experiences of all clients. They are not a guarantee of future performance. Each client’s situation is unique. No compensation has been provided for these testimonials.
Model 1: Ongoing Portfolio Management (~1% Annual Fee)
Financial advisors working under the fiduciary standard usually charge clients a fee based on the percentage of the client’s assets they manage. They might also provide other financial planning services paid for by that fee.
That fee seems to hover around 1% by convention, or it started that way because it is a round number. Anything above seems excessive because clients usually have additional costs for the products, which are not paid to the advisor. Hopefully, the advisor keeps those product costs low by incorporating institutional share classes and index funds.
Model 2: Hourly Planning & Project-Based Advice
Because regulatory hurdles have historically targeted the conflicts of interest inherent in rollovers, some industry experts predicted a shift toward hourly fee arrangements where the advisor manages the funds while they remain in the client’s 401(k) or 403b.
In practice, however, this shift has been limited. Since the strictest versions of the Fiduciary Rule were vacated, the majority of advisors continue to recommend rolling assets into an IRA, where they can more easily manage the portfolio and charge an asset-based fee. While the hourly model exists as a conflict-free alternative, it remains the exception rather than the rule.
Model 3: One-Time Commission Solutions
One historical problem with the commission model was the many undisclosed conflicts of interest that influenced product recommendations; too often, customers were steered into higher-cost products. Under Regulation Best Interest, however, these conflicts must now be disclosed and managed.
This new transparency makes a one-time commission a competitive alternative to a fee-based advisor’s ongoing fees for rollover options, especially for clients whose 401(k) or 403(b) plans lack good income choices or institutional pricing, provided the financial professional thoroughly selects the funds in the new rollover IRA.
My Flexible Approach: Three Ways to Work Together
- Hourly Planning — $200 per hour. Plan for investing & retirement income (including Social Security timing). Advice-only; written recap with next steps. Capacity: Cambridge Investment Research Advisors, Inc. (RIA) — Investment Adviser Representative (fiduciary).
- Ongoing Advisory (Portfolio Management) — 1% or less per year depending on size/complexity. Custom money management; scheduled reviews; no sales quotas. Capacity: Cambridge Investment Research Advisors, Inc. (RIA) — Investment Adviser Representative (fiduciary).
- Commission-Based (When Appropriate) — Varies by product. Often best for smaller accounts; supports certain IRA/403(b) needs under Reg BI. Capacity: Cambridge Investment Research, Inc. (broker-dealer) — Registered Representative.
These are the opinions of Financial Advisor Tim Hayes and not necessarily those of Cambridge Investment Research. They are for informational purposes only and should not be construed or acted upon as individualized investment advice. Content provided via links to third-party sites should not be considered an endorsement of content that we cannot verify completeness or accuracy of.