5 Things Advisors Need to Know about the DOL Fiduciary Rule

DOL Fiduciary RuleEditor’s Note: As of February 3, 2017, the fiduciary rule’s April deadline has been delayed per executive order of President Trump. The Department of Labor has 90 days to evaluate the regulation and determine its future status.

Back in January, a new fiduciary rule under the Employee Retirement Income Security Act (ERISA) that had been proposed by the Department of Labor took its last step toward finalization. Despite speculation surrounding whether or not the rule would be implemented, as it would significantly raise investment advice standards, the DOL officially approved the change on April 6, 2016. The newly expanded rule, which was more than five years in the making, aims to ensure that investment advisors are acting in the best interests of their clients and eliminate any potential conflicts of interest between the two parties. The DOL’s 1,023 page documentation for the rule includes a wealth of commentary, new context and changes that may affect wealth advisors. Instead of flipping through this colossal document, we’ve rounded up five major things advisors need to know about the final DOL fiduciary rule going forward.

  1. What changes were made in the new fiduciary standard?

    The new standard is an expansion of the existing rule, which makes it more likely that an advisor or broker would be considered an ERISA fiduciary. Under the prior regulation, it was fairly easy for advisors to avoid fiduciary status. There are three major changes to the rule:

  • Advice no longer needs to be provided on a regular basis to be considered fiduciary
  • Mutual agreement is no longer needed to assert fiduciary status (just understanding that the advice is personalized)
  • Advice no longer needs to be the primary basis for consideration.
  1. Are there any exemptions to the DOL Fiduciary Rule?

    One major exemption is the Best Interest Contract Exemption (BICE). Under this provision, firms can continue to sell financial products without being a fiduciary. The BICE requires a written contract between advisor and investor that does four explicit things:

  1. What adjustments will advisors have to make?

    Because the reason for the rule is for advisors to put their clients’ best interests first, advisors will have to adjust the way they approach the client relationship. Advisors and brokers will need to move away from a product-centric approach to a more client-centric approach. They will have to spend more time getting to know their clients and their financial needs in order to make the recommendations that are right for that specific client. In effect, advisors will have to learn the full breadth of customizable products available to recommend to each different client, and will have to be trained quickly on how to present a more expanded scope of financial solutions. Firms must find a way to get quick access to all supporting materials needed to educate advisors’ client bases. Overall, adhering and adjusting to a new rule without neglecting (or dropping) clients with a lower number of investible assets will prove to be a challenge to advisors in the wake of this rule.

  2. How can technology help advisors and their firms?

    The right technology can help advisors scale, increase access and proximity to clients, better capture information about clients, and help them make more informed decisions. Document automation tools can use a client’s information, goals and needs to quickly build a pitch book of potential solutions that are aligned to that specific client. Advisors should be able to access their content, including these automated pitch books, on any and all devices so information can be updated and personalized on-the-go. This allows advisors to meet with more clients in less time while still improving the client experience. Technology can help advisors easily capture the minute details of every client interaction so they can appropriately validate the recommendations they make. This will prove valuable should an advisor ever be questioned about adherence.

The DOL’s new fiduciary rule changes the game for many wealth management firms, but those embracing technology’s role in the client-advisor relationship will be much more prepared to adapt. Overall, the rule update should effectively close a loophole that has historically strained the client-advisor relationship and ideally reduce the risk of conflicts of interest, but advisors may have to work harder—and definitely smarter—to grow or just maintain a client base. Using technology where appropriate will help firms efficiently provide a world-class client experience despite stricter regulations.


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