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DOL Fiduciary Rule

The DOL Rule: In Challenge Lies Opportunity

Ed O’Brien, the CEO of eMoney Advisor, says advisor sentiment toward the fiduciary rule is improving and those who can adjust their practices to comply with it will prosper.

If I told you the Dept. of Labor (DOL) fiduciary ruling has the industry divided, it would be the understatement of the year.

On one side, new research from Fidelity Institutional shows that 29 percent of advisors consider the rule as a positive — a 17 percent increase since January. That’s encouraging news. But, in the same report, 10 percent of advisors said they plan to leave or retire from the field earlier than expected because of the rule, with 18 percent rethinking their careers altogether.

A line certainly has been drawn and there are some advisors and firms who are reserving their judgement until the rule is implemented next year. A recent Deloitte survey of financial firms with diverse business models found that 78 percent of respondents are still in the process of developing an understanding of the rule. The question is where do you fall on the spectrum?

Regardless of your current stance and the pros and cons that exist for the rule, there’s something to be said about embracing the challenge and searching for the silver lining. Look close enough, and you may be surprised at the opportunities it presents. The trick is understanding the real impact the rule will have on you and what you can do today to position your business for success in the future.

Survey the Landscape

With four out of every five advisors somewhat familiar with the DOL rule, chances are, you’ve done some homework yourself. A simple search on Google is bound to return a cavalcade of information with varying degrees of value, from fact sheets and explainer videos to formal reports and opinion pieces. Sifting through the noise and identifying what’s relevant to your business is an exercise in patience and persistence.

So it’s easy to see why the rule overwhelms some advisors, even at a high level. The way you run your business is about to evolve, and when you’re presented with conflicting or speculative reports on the rule, building a definitive strategy for growth can be difficult. But it isn’t impossible.

To start, I would recommend looking for answers to two very important questions: What is the cost of doing business in a post-DOL world, and what options are available to help your business succeed?

Know What You’re Up Against

Taking research from a recent Fidelity survey that asked advisors for their reactions to the DOL rule, we can start to piece together an accurate picture. Overall, advisors anticipate an increase in compliance and an increase in the cost of doing business. In fact, 55 percent of surveyed advisors believe the rule will increase time spent on compliance-related tasks, while 75 percent expect service costs per client to increase.

Dedicating time, energy and resources to adjust your business operations means carving out a new strategy to deliver advice. You’ve likely heard the key argument that advisors will need to re-evaluate the types of clients they serve to accommodate the cost of doing business. In Fidelity’s survey, 62 percent of advisors said they plan to let go of or transition some smaller clients to other firms, and nearly two-thirds surveyed plan to re-evaluate the products they recommend and the fees associated with them. Additionally, in a survey by the National Association of Insurance and Financial Advisors, nearly a quarter of advisor respondents say they will lose all of their lower and middle-income clients.

On the surface, this research doesn’t seem encouraging, and I can understand why the DOL rule may appear intimidating, but recognizing the challenges and assessing the gaps are just the first steps you have to take when implementing your post-DOL plan. Doing so will not only minimize the impact on your business, it will also position it for greater success down the road.

Visualize the Opportunity

In spite of the challenges, remember that positive sentiment towards the rule has been on the rise since the beginning of the year. That’s not a coincidence. As more and more advisors learn what the rule requires, they can identify how equipped their business is to not only survive the changes but thrive.

For example, let’s look at the title of fiduciary. Suffice to say, most advisors have always worked in their clients’ best interest prior to the DOL ruling. Yet, from your clients’ perspective, acting officially as a fiduciary instills confidence in their relationship with you. Building from that confidence, half of advisors surveyed expect client engagement and collaboration to increase, doubling down on efforts to improve their relationships.  

That also means a greater emphasis on financial planning will emerge. Working closely with clients to plan for the important financial stages of their lives will prove your value as a trusted advisor. Through this collaborative relationship, you’re able to justify your fees — which is good news, since many advisors anticipate an increase in their use of fee-based compensation by 10 percent to offset an expected 10 percent drop in commissions.

As advisors adjust their process to accommodate the increase in compliance-related tasks, such as documentation and recordkeeping, advisors will turn to financial technology to automate many of their operations. Fintech will certainly play a central role in helping you achieve greater efficiency and scale — in relation to the DOL rule and beyond.

How Does Your Current Technology Stand Up?

While you may have some tech in place now that could help you meet the requirements of the DOL, you may have to take that up a notch. If you’re unsure, take our quick assessment to see how prepared your business is to handle the changes. The assessment will help you identify the gaps and strengths of your current technology.

Rise to the Challenge

The DOL rule has made an impact in the financial service industry, but you’d be lying to yourself if you thought this is the last government regulation that will affect your business. Choosing not to act may hurt you in the future, and as Deloitte found in their survey, only 55 percent of firms have undertaken significant planning activities to prepare for the rule. Maintaining a path to readiness and knowing how to work toward a solution is your best chance at evolving your business as the industry shifts. Opportunities will always present themselves. You only need to look for them. Future success is there too. You just have to plan for it.

Ed O’Brien is the CEO of eMoney Advisor.

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