Discussing plans with counsel ahead of time isn’t always just to avoid making an unintended mistake; it can also keep you from failing to use a new opportunity... Keeping an eye on changes to competitor collaboration rules … might help advisors find new ways to serve their clients and keep their businesses strong.
While all eyes were on the Supreme Court and a potential ruling on changing the ESG rule a new recommendation from the Sabin Center for Climate Change Law and the Columbia Center on Sustainable Investment (CCSI) might have slipped under your radar. It’s tempting to assume this report would focus mainly on climate change, since it came from a think tank focused on that topic. But not so fast. Instead, it makes several broader calls for changing how the DOJ and FTC approach collaboration among competitors. Given that the last time the federal government issued guidelines on collaboration was 2000,[1] it is a much needed call. “Since the existing guidelines were released in 2000, dramatic technological, economic, social, and environmental changes have reshaped market circumstances considerably.”[2] Just as sustainability has undergone dynamic change so too has the financial industry. Financial advisors have responded to this change by finding new marketing products, such as coaching or collaboration. They may want to stop and listen before collaborating. Here is a background on the topic so that advisors can spot issues to discuss with their compliance and legal counsel while they may be planning new marketing changes.
In their summary page, the CCSI notes that antitrust enforcement was “reinvigorated” under the Biden Administration, beginning with an executive order signed in July 2021 which urged agencies to recommit to the enforcement of antitrust laws. Enforcement actions under those laws have increased since that time. Further regulations around mergers and collaborative actions were released in 2023.[3] From the CCSI’s standpoint, collaboration among competitors concerning sustainability can provide a social benefit. So too with collaboration among financial advisors: there is a definite social benefit when advisors collaborate (such as benchmarking). Yet, there is a lack of definite lines over who may be a competitor given today’s vertical and inter-related product lines.
Advisors may not realize that some of the newer approaches to financial advising may involve competitor collaboration. The DOJ’s definition of such collaboration is quite broad. Any agreement, other than those involving mergers, between actual or potential competitors concerning business activities such as R&D, marketing, sales, or purchasing can fall within the definition. “Information sharing and various trade association activities also may take place through competitor collaborations.”[4]
We’ve discussed this issue in the context of how to gather benchmarking information around fees. “You may recall that the portions of the new fiduciary rule that the Department of Labor (DOL) tried to roll out concerning reasonable compensation met with a lot of criticism. There, the DOL provided little guidance as to what constitutes reasonable compensation requiring advisors to carefully walk the line of relying on benchmark standards without breaking antitrust price setting rules.”[5]
More recently, Robert Terry discussed how advisors may need to consult with compliance counsel regarding marketing to MEPs. “Advisors should discuss potential anti-trust risks with compliance or legal counsel. The potential for antitrust investigation into the trade association is serious. “Mere synchronized or “parallel” conduct by individual members … could still invite costly antitrust investigations and litigations by competitors or regulators even in the absence of an explicit anticompetitive agreement….”[6]
Coaching may also be an area where collaboration rules could be problematic. “Advisors may already have begun to incorporate coaching elements into their work with clients. Some advisors may have traded in their advising practice to only coach clients. The differences between advising and coaching may be confusing to investors, and to an advisor’s potential clients.”[7]
Coaching is often used as a method of cross-selling to clients. Other cross-selling options t could cause concern “Cross-selling is marketing additional products to existing customers, and it’s often practiced in the financial services industry.”[8] Some have made clear that “the term cross-sell describes how effectively you are able to meet multiple needs for your clients. It comes down to how many products and services you can provide for each client.”[9] We’ve noted that cross-selling can create potential conflicts of interest,[10] or fun afoul of SEC rules on advertising. In an effort to accommodate those rules, financial professionals may create separate stand alone businesses. Since those businesses do not necessarily engage in the same business, it seems like they couldn’t be considered competitors. Except, the definition of competitor, just like the definition of the specific market, is drawn by the regulator not the regulated.
Discussing plans with counsel ahead of time isn’t always just to avoid making an unintended mistake; it can also keep you from failing to use a new opportunity opened by a rule change. Keeping an eye on changes to competitor collaboration rules, whether by discussing this at regular meetings with compliance and legal counsel, or through other means, might help advisors find new ways to serve their clients and keep their businesses strong.
[2][3] https://ccsi.columbia.edu/news/recommendations-update-antitrust-guidelines-competitor-collaborations
[5] https://www.bcgbenefits.com/blog/zero-fee-funds
[6] https://www.bcgbenefits.com/blog/marketing-meps
[7] https://www.bcgbenefits.com/blog/financial-coaching
[8] https://dyl.com/blog/5-ways-financial-advisors-boost-profits-through-cross-selling
[10] https://www.bcgbenefits.com/blog/diversified-streams-of-income
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.
get xpress proposal
