It’s no secret that many financial advisors are not looking forward to complying with the Department of Labor’s new fiduciary rule. In our conversations with advisors, including those held during our 16-city working sessions across the United States, we consistently hear concerns about what it will take to transition to a fee-only practice.
While the DOL rule certainly presents short-term challenges, it also creates a unique opportunity for financial advisors to reemphasize their value proposition to clients while establishing more consistent revenue and improving firm efficiency. Advisors who are proactive in adjusting to the rule and those who look for creative ways to turn the regulation into a driver of growth will put their firms in a position for long-term success.
Leverage the Fee Conversation to Highlight Your Value
As advisors adapt to the DOL rule, they will face challenges in convincing clients to transition away from commission products and absorb new fees. Yet these difficult discussions also create a tremendous opportunity to drive home the value advisors provide to their clients.
Advisors who were previously not fiduciaries can reinforce how they are operating in the best interest of their client and will be providing a higher duty of care. Regardless of fiduciary status, all advisors should take this time to rethink and better articulate their unique value proposition. For instance, advisors should work to identify and communicate their distinct skill sets to clients. This process requires taking a hard look at their client roster and figuring out the types of clients they most wish to serve, and in which areas they can deliver the greatest value.
Other ways advisors can help ease the transition and assert their value is to hold regular meetings with top-tier investors and client advisory boards. This will allow them to continue an open engagement and discussion of how clients will see a higher level of service. Advisors with consistent feedback on client preferences and satisfaction can continuously gauge their value proposition, make adjustments and structure future client conversations accordingly.
Use Segmentation to Inform Difficult Decisions
As advisors begin the process of transitioning to fee products, many will organize their client roster by revenue, providing a unique opportunity to reassess firm priorities and increase efficiency. In fact, this type of segmentation enables advisors to determine how much time they are spending on each client and make adjustments to improve efficiency and ultimately increase revenue. Advisors may also find that they need to reassess the time spent and services delivered to lower-tier clients who no longer help to insure profitability in the wake of the post-DOL environment. While this can initially be challenging, such actions will help focus resources and place a firm in better financial shape.
Increase Firm Revenue
Transitioning to fee-based compensation also presents an opportunity for firms to increase revenue and position themselves advantageously for a future sale. Most notably, a fee-based payment structure offers more consistent revenue than commissions. Moreover, as commissioned products are phased out under the new rule, firms that have already undergone the switch to a fee-based model will be more attractive to potential buyers, and thus valued higher.
At the end of the day, despite its various challenges, the DOL rule presents several opportunities for advisors to reassert their value, while simultaneously improving firm efficiency and revenue. The advisors who recognize—and act—on this quickest will find the most success in the post-DOL rule world.
Matt Matrisian is senior vice president of Strategic Initiatives at AssetMark, Inc. @AssetMark.