Connect with us


Awaiting the DOL Storm


Awaiting the DOL Storm.jpg

What you can do to prepare for the pending fiduciary rule

You know the feeling: a local weather forecaster advises us that a disturbance is forming off the coast. Looking at several different weather models, they only know one thing for certain: the storm will hit, but we’re not exactly sure when or how strong it will be. Of course, we all react and rightfully so, as we need to protect what’s ours. We’re anxious, unsure of what’s to come, leaving many worried about their future.

That’s pretty much the same feeling advisors are sharing about the pending Department of Labor’s proposal to impose the fiduciary standard on retirement accounts. It’s a storm of anxiety and uncertainty raining on every advisor whether they work for a behemoth wirehouse or are a small independent.

Truth be told, the DOL rule is indeed casting a cloud over the industry as it will likely affect everyone, regardless of whether or not you service retirement accounts, as everyone to some degree is expected to be subject to greater compliance oversight.

Battening down the hatches

While all firms will need to interpret the rules and then define guidelines, it’s the wirehouses and independent broker dealers who will likely need to be far more stringent and inclusive, as they must create mandates for the organization at large; i.e., tens of thousands of advisors, taking the lowest common denominator into account. So whether you service retirement plans or not, you will be beholden to rules created for those who do.

In order to maintain profitability – and limit compliance exposure – wirehouses and IBDs are likely to cull their service offerings. Therefore, advisors who serve clients with commission-based retirement accounts are likely to see a reduction of available products, and experience an impact on their own ability to generate revenue.

Conversely, RIAs will have more latitude with which to interpret the new rules because they are looking at a smaller number of advisors who service a like client base, rather than a disparate one. Most importantly, RIAs are already fiduciaries, serving clients in a fee-based model. They, too, will need to come up with a way to respond and ensure compliance, but they can do so in a more customized and flexible manner.

Changes in the landscape

In a recent article on, Morningstar analyst Michael Wong speculated that the “entire value chain” will be affected by the rule, resulting in fewer commission-based products available to investors, as well as a decline in the overall number of financial advisors. Other theorists expect attrition levels at wirehouses and IBDs to increase as advisors look for more flexible, independent options.

Ultimately, everyone agrees we can expect to see a wave of M&A in the independent space as it’s going to get more complicated and expensive to do business. Smaller firms will often not have the resources – or finances – to manage the new standards. In order to survive, many will need to join forces with larger firms, thereby taking advantage of greater scale and a more robust infrastructure—and the likelihood of having a compliance officer already in place.

How should I be preparing?

Given the uncertainty around the rule, you should be using the next few months to answer the following questions:

Do I believe in the fiduciary standard and how will my client base respond to the new rules?

Does practicing under a broker-dealer umbrella continue to serve me given the fact that these models could mean more bureaucracy and less flexibility, freedom and control?

Roger, a $6mil wirehouse advisor called me the other day to “pick my brain.” He said, “Up until recently, I dismissed independence. The past five years have been great: I doubled my production, I doubled assets, I hired a few people. Now I look around the office and I’m the biggest producer by a factor of 3. To be held to the same standard as others who run far less profitable and productive businesses than me seems unfair. I worry that the rules will impact not only the way I service my retirement accounts (which only represent less than 3% of my annual revenue), but how I service every account. That’s not how I want to do business.”

Roger knows that just like a predicted storm, no one knows how the rules will change or what the impact will be until it happens. What we do know is that there will be a change and the only thing you have control over is how ready you are to respond to it. Now is the time, while we wait for word from the DOL, to do your soul searching, to think about your goals for your business and clients, and determine if where you work and how you currently practice will still be right for you in a world with new rules. Getting educated about the industry landscape and maybe even exploring your options during this time of relative calm is wise  Here’s the thing to remember: you hold all the cards. You run a successful business, you have loyal clients, and if you are making decisions based on what’s right for all constituencies, you will ride out this storm and thrive.

Continue Reading