Several of my colleagues have recently written about the Department of Labor’s (DOL) latest fiduciary rulebeing welcome, global and promising. This holds true despite speculation that the new Trump Administration may decide to alter the course of the rule.
After all, the DOL rule isn’t the only factor contributing to this shift toward operating as a fiduciary. Well before the rule, many advisors were moving from transaction to advisory solutions and others were joining the ranks of independent advisors. In many ways, the DOL rule provides the necessary catalyst for alladvisors to implement the best practices that they had previously only considered.
In addition, the DOL has brought to light a distinction in the eyes of the consumer between advisors who operate as fiduciaries and those who don’t. As a result, many advisors are making strategic business decisions to position themselves according to this new interpretation of value. Market forces – robo-advisors, technology integration, fee pressures – are transforming the competitive landscape for advisors.
As InvestmentNews noted earlier this year, the requirements for being a top-performing advisor are increasing above historical industry standards. This trend occurs in every industry – financial services is not immune to it. However, it is my view that the advisory industry is exceptional in that the short implementation timeline outlined by the DOL rule makes this shift of the curve immediate and abrupt.
Looking at the illustration above, as a proxy for the new competitive landscape, advisors currently on the left side of the curve are likely to either choose to leave the industry – or be forced out. The “average” advisor currently in the center of the curve will likely shift to the left.
So what’s an advisor to do to help keep to the right of the new curve? The short, simple answer is this: As the rule outlines, work for the best interest of your clients, in a meaningful, provable way.
To help you meet a fiduciary standard that either the DOL or your conscience calls for, earlier this year I created a robust-but-simple standard that we call The Four Pillars of a Sustainable Practice. You can learn more about each pillar by following this link, but read here first:
· Manageable number of client households: The level of oversight required for client relationships and the potential liability of each relationship are likely to increase. This may impact the total number of households you can effectively serve.
· Product Inventory Control: Make sure your product inventory meets clients’ needs, while also striking the proper balance between your business economics and risk management related to your fiduciary responsibility.
· Documentation of key processes: Acting in the client’s best interest requires that advisors document, implement and optimize their business’ key processes in an operations manual.
· Optimized client experiences: Advisors who adopt an intentional focus on client satisfaction should be well positioned to successfully navigate the changing landscape of advice.
The bottom line
Change is never easy and it’s not comfortable. But, at times of great disruption, change is necessary. And how you handle that change can make for a promising tomorrow. At Russell Investments, we’ve been partnering with advisors to meet the fiduciary challenge for over 40 years.
For more information about the DOL rule for advisors click here.
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