Revenge of the Nerds (all Thanks to the DOL)

An amazing thing just happened in the industry. Regulatory changes aren’t always a benefit to advisors (and sometimes they’re downright detrimental to business), but the DOL fiduciary rule should have every fiduciary-focused advisor jumping for joy.

At long last, consumers are hearing about the value of a true fiduciary. The hedge fund scandals that rocked the investment world over last decade should have woken them up long before now, but it took April’s highly anticipated ruling to bring fiduciary responsibility to the front page. People who may have never even heard the word “fiduciary”—much less understood what it meant—are now chatting about it over cocktails. And they’re finally getting it.

Within the financial services industry, this means that, finally, the “nerds” are getting the spotlight, and these smart, client-focused advisors are poised to reap their just rewards. Rewards for consistency. Rewards for paying close attention not to big-bang returns, but on the true needs of their clients. Rewards for delivering consistent, reliable results year and year after year. Sure, this type of deliverable doesn’t sound as sexy as the 20% return on investment that flashy advisor down the street has been promising for years (while he calmly assures his clients that the recent down market is just an anomaly), but it’s real. It’s tangible. And better yet, it’s what your clients actually need .

For advisors, it’s a shift that has the potential to have a major impact on the growth of your practice. First, you’ll no longer be forced to compete with that flashy, non-fiduciary advisor. If the DOL didn’t outright close his doors, they’ve certainly thrown a wrench in the spokes, and it’s going to take some time to adjust to this new, required model. Second, it opens up a valuable opportunity to demonstrate to clients and prospects alike how, as a fiduciary, your process is inherently outcome-oriented. Rather than seeking unrealistic returns, your focus is on growing and protecting their assets. Rather than seeking alpha regardless of risk exposure, you focus on building a tailored portfolio based on their specific goals and risk tolerance. And while you can’t promise a 20% return, your clients and prospects finally know that no one can deliver on that promise . Even more, they never could.


Of course, even as a fiduciary, the DOL rule includes an increase in regulatory, compliance and risk oversight that can feel daunting, and it’s easy to fall into the trap of focusing on all the things you shouldn’t be doing. Instead, I urge you to consider focusing on the things you can be doing to demonstrate consistency and due diligence in your role as a fiduciary.

1. Deliver the investment experience your clients want—nothing more, nothing less.

Having investments perform as expected is paramount to success in today’s environment. As a result, proving your expertise as an advisor has little to do with “achieving big alpha” and everything to do with delivering the results your clients want. What you may find is that few clients actually expect alpha—or excess returns relative to the return of the benchmark index. In fact, I would argue that there is elegance in achieving zero alpha above the compensated risk your client is seeking. Yet there’s always that temptation to outperform.Think about it: your client comes to you seeking a domestic portfolio with no international exposure, so you place her in a fund that’s not a pure exposure model and has achieved alpha in the domestic space for five years running. You later learn there actually was some international posture in these products, and that exposure was responsible for the alpha over the domestic benchmark. Is it better to produce alpha (after all, every client loves big numbers!), or better to fulfill your fiduciary responsibility to your client and maintain the exposure she requested?

No matter how tempting it may be to outperform and be a rock-star advisor, stick to your fiduciary duty and deliver what your clients ask for—even when the big alpha is out there like a carrot on a stick.

2. Upgrade your client communication—and your due diligence.

A huge part of due diligence is client communication. To comply with the new regulations, create a formalized communication plan and execute it consistently. It’s one of the simplest things you can do, and it delivers clarity and transparency. To get started, email your clients with three simple questions: How often would you like to hear from me? What method of communication do you prefer? What events or education interest you?The results may surprise you. I counseled one firm whose clients replied that they expected to hear from their advisor weekly—and even daily during market turbulence. The advisor was overwhelmed because of this “can of worms” that had been opened, and it was in writing. In reality, it was fantastic news. Information is power, and knowing that a client has unrealistic expectations enables you to address the issue and manage those expectations, all in writing.

Of course, the last question is pure marketing leverage, giving you valuable client insights and an immediate pool of ideas for future events and webinars.

3. Focus on acting in each client’s best interest—and shout about it!

I know. I know. You’ve been doing this for years. At least the first part. But while many advisors are busy getting sidetracked with the all of the “don’ts” that come with the DOL rule, take advantage of this moment to tell your clients and prospects that you are their trusted fiduciary. You’ve spent your career being the decidedly unflashy “nerd” and acting in the best interests of your clients, even while your competition was wooing some of your best A clients with bells and whistles. It’s time to give that guy a run for his money—and perhaps add a chunk of his AUM to your own book of business.

Oscar Wilde once said, “Consistency is the last refuge of the unimaginative.” Perhaps, but remember that he most definitely wasn’t a nice guy. You are. Be consistent, and as soon as you’re done jumping for joy, go grab that piece of the market that’s been waiting for you.

Before investing, carefully consider the FlexShares investment objectives, risks, charges and expenses. This and other information is in the prospectus, a copy of which may be obtained by visiting . Read the prospectus carefully before you invest. Foreside Fund Services, LLC, distributor.

An investment in FlexShares is subject to numerous risks, including possible loss of principal. Fund returns may not match the return of the respective indexes. The Funds are subject to the following principal risks: asset class; commodity; concentration; counterparty; currency; derivatives; dividend; emerging markets; equity securities; fluctuation of yield; foreign securities; geographic; income; industry concentration; inflation-protected securities; interest rate / maturity risk; issuer; management; market; market trading; mid cap stock; natural resources; new funds; non-diversification; passive investment; privatization; small cap stock; tracking error; value investing; and volatility risk. A full description of risks is in the prospectus.