Mitigating the 3 common conflicts of AUM fiduciaries

Advisers who use an assets-under-management model should lead with planning and do what’s in the best interest of their clients at all turns

For years, there’s been an ongoing tug of war in the financial services industry about standards of care, compensation and business structure. Based on what was once almost the expanded Department of Labor fiduciary rule and the Securities and Exchange Commission’s new Regulation Best Interest rule, one might believe advisers who charge an asset under management fee are the “good guys” and everyone else the “bad guys.”

This sharp divide is how some people actually view financial services – someone brought it up during a live media event I was at earlier this year. But I don’t see the financial services industry as black and white. I see a lot of gray. (And we’re not just talking about the hair color of the aging advisory community.)

As director of retirement research at Carson Group, I understand that while some advisers have a flat fee, among other models, most advisers charge their clients under an AUM model. I’m not here to argue the benefits of the AUM fee model, but to point out common issues and how you can solve for these inherent conflicts.

Rollover advice

Rollover advice was one of my favorite pieces of the DOL fiduciary rule. It highlighted the issue any adviser faces when providing advice to roll over a 401(k) or other account to an IRA that is under the management of an adviser. As an adviser, you don’t get paid when the client’s money is in the 401(k) or other institution – only when it’s rolled over into an IRA. But a rollover isn’t always in the best interest of the client.

Today, clients are rolling over assets from the Federal Thrift Savings Plan, state level plans, or large 401(k) plans – but they might benefit from leaving the money in those plans. Your initial advice might be to roll over, but it could be viewed as a conflict.

Mitigation: Just because a conflict exists doesn’t mean it’s a bad thing. Conflicts come up when compensation is involved. People who are paid hourly sometimes drum up more work to increase hours – less-than-the-best attorneys do it all the time.   

In a rollover situation, you should expect to be paid, but you need a process to identify when a rollover is in the best interest of a client and when it’s not. Look at plan fees, investments, and distribution options, and determine what the client’s goals are for their wealth and retirement. You can’t and shouldn’t advise a client to do a rollover without first vetting that your recommendation is in their best interest. 

Set-and-forget model

An asset under management model can include both investment
charges and advice. However, any fee you charge should be reasonable for the services you provide. Your fees need to be transparent so clients know what they’re paying for – or to word it a different way, what you’re getting in return for your services and value. I see too many AUM advisers gathering assets without planning and instead setting and forgetting their clients’ assets. There is a fee you could charge for this kind of service, but does your 1% fee really match the services you provide year to year?

Mitigation: Advisers need to lead with planning. Investments and insurance products shouldn’t be our lead, but they should fit into a plan and planning process and serve the best interest of the client. Gathering assets and setting an investment allocation doesn’t warrant a seven-figure yearly planning fee. Make sure you know why you charge what you charge and how you provide value based on your fee. If you wouldn’t pay it, your clients shouldn’t either.


Many AUM advisers steer clear of insurance products for a number of reasons. First, compliance issues and restrictions allow investment and insurance to coexist. Second, knowledge of insurance products is often less than ideal among AUM-based planners. Third, many insurance products pull out money of the AUM model, thereby reducing the amount the AUM adviser makes.

If you fail to recommend insurance because you would make less money, it can be a conflict. This conflict isn’t exclusive to insurance – it occurs with advice around paying off debt, such as prepaying a mortgage or paying off credit card debt from AUM.

Mitigation: You can help mitigate the risk of annuicide a couple ways. First, you could be a hybrid adviser and deliver insurance
for a commission. This opens new types of conflicts, though. Second, you could start to use certain asset-based insurance products like asset-based fixed indexed annuities.   

You can also lead with planning and get compensated for it. Don’t view compensation as solely related to AUM. Consider the value you provide through planning. I think more AUM advisers need to use insurance. Insurance products build in protection, help with retirement income and provide a risk mitigation mechanism. If you’re ignoring this as a solution, you aren’t doing the best for your clients.

Advisers, whether or not you’re a fiduciary, act like a fiduciary. Mitigate conflicts and get out of your own way. Don’t let your compensation model drive your planning and advice. Lead with planning and do what’s in the best interest of your clients at all turns.

[More:  What the SECURE Act means for annuities]

Jamie Hopkins is director of retirement research and vice president of private client services at Carson Group.

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