It's not about products sold, but rather services rendered. How do advisors package, promote (and yes) price their intellectual capital and expertise in the fiduciary age?
It’s a salient question, one made all the more pressing as the Department of Labor’s Conflict of Interest Rule rolls closer to implementation. Discussed ad nauseam at industry conferences for some time, the topic of fiduciary will continue to occupy prime keynote space due to its wide-ranging impact on almost every facet of the retirement planning industry, advisors included, and no matter how much they may say they tire of hearing it.
Simply put, “sell” is now a four-letter word—literally. How well advisors, RIAs and broker-dealers adapt to a business model dependent on service, rather than products, will determine success or failure for all stakeholders, none more so than the clients themselves.
More importantly, advisors have long been admonished to rely on something other than simply products and fees, as their increased commoditization signals a dead end for advisors who do. The DOL’s rule, released last spring and set for implementation in 2017, means it’s no longer an option.
“The DOL’s fiduciary rule is all about servicing plans, and never once mentions products,” says Charlie Epstein, principal of Epstein Financial Group. “It’s about how to differentiate your expertise and your practice, rather than displaying your product lineup.”
This new environment will require a “deep dive into the DOL’s fiduciary standard of care,” Epstein notes, in order to determine how to best “package your intellectual capital and expertise and still be able to charge more than your competition.”
What they find in that deep dive, however, is potentially something over which to get excited. After all, he explains, it was Ted Benna, a hungry and resourceful benefit broker, who first uncovered the 401(k), today arguably the country’s most popular savings vehicle for workers. The latest stats from the Investment Company Institute peg 401(k) assets at almost $5 trillion and climbing.
“How much of that kind of thing is in the DOL’s Conflict of Interest Rule, and also just waiting to be uncovered?” he adds. “For advisors who really take the time, the potential upside is huge. In addition to the competitive advantage which can come from figuring it all out, no one really knows yet what’s hiding in there.”
It’s a message that’s resonating. A recent study from Fidelity Investments found that “advisors who specialize in the retirement plan market are delivering increasingly greater value, offering services that allow them to operate as a fiduciary, as well as building scalable ways to manage investment menus and serve their plan sponsor clients.”
If they are successful at demonstrating their knowledge, it adds, advisors could “potentially expand their share of the market and become even more competitive.”
All well and good, but how is it done?
Education is a natural starting point, and exempted from certain fiduciary considerations related to investment recommendations, according to fiduciary powerhouse Fred Reish of Drinker Biddle & Reath.
More specifically, financial wellness is a current buzzword, and the need is increasingly apparent, reflected in low savings rates and correspondingly low average 401(k) balances. More Americans are realizing its importance, and more business owners that provide employer-sponsored retirement plans (as well as their CFOs) are recognizing how it positively affects their bottom line.
Another example involves the guidance advisors can provide with 401(k) investment menu changes, and ensuring they’re well-rounded, well-considered and well-suited for inclusion in a properly diversified and fully optimized retirement planning portfolio.
Indeed, the Fidelity survey found 87 percent of respondents made an investment menu change in the past two years—a “remarkable increase” of 52 percent since Fidelity began asking the question, and an area in which clients are looking for help.
Whichever services are ultimately offered, their effective packaging, promotion and pricing are now more important, if simply due to the influx of advisors now subject to the fiduciary standard of care.
True retirement advisors will claim fiduciary services are something they’ve always provided, and implementation of the rule will therefore have little impact on their day-to-day business. Yet because offering a fiduciary standard is no longer a differentiating factor from industry competitors, it makes the proper positioning of those services critical moving forward.