New Federal regulations change what financial advisors do and how they do it as well as the amount of compensation they receive. These regulations apply to advisors who offer investment advice to IRAs, retirement plans or participants. The effects will also be felt by clients, providers they use and affiliated firms.

Under current rules, most financial advisors are paid by investments to find good deals for clients. The advisor’s business is sustained by offering investments that perform well for clients. Advisors who offer bad investments lose clients and are out of business in a short time.

Regulators have decided that this type of arrangement represents a conflict of interest and have established new rules to end these practices. Under the new rules the advisor’s job is no longer finding good deals and payment is no longer for making investments.

Under the new rules, the financial advisor’s job is to provide defined services to clients and receive payment that is in line with those services, which must be in the client’s best interest. On the surface this appears quite reasonable but further examination shows the challenges that the change creates.