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DOL Fiduciary Rule
US Department of Labor fidcuiary rule Copyright Alex Wong, Getty Images

Fighting the DOL Rule Is a Bad Marketing Plan

There is a huge business opportunity to guide advice-hungry boomers into retirement, but only if they trust that you have their best interests at heart. Is it any wonder that most don’t believe that?

Will the Trump Administration repeal the Department of Labor conflict-of-interest rule? That’s not yet clear. Regardless, the financial services industry should go ahead and fully implement it anyway.

Why? To paraphase political operative James Carville: It’s the authenticity, stupid. Rather than fight a regulation that requires advisors to put the best interest of clients first, the industry has the opportunity to embrace a way of doing business that baby boomers and GenXers are craving: a fair deal.

Ken Dychtwald, the pioneering expert on gerontology and longevity, has argued that the private sector has a huge opportunity to help guide people as they make choices related to aging and retirement. In the financial services sector, the opportunity is to provide conflict-free, reasonably priced holistic planning and advice.

But many consumers, of all ages, don’t believe the industry is a trustworthy source of that guidance.

Mistrust of the financial services industry has been high ever since the financial crisis of 2008–2009, which ruined the balance sheets of millions of households. Just 27 percent of Americans tell Gallup that they have high confidence in banks, down from 49 percent in 2006.

And recently the Employee Benefit Research Institute asked workers and retirees: “To what extent do you agree or disagree that the advice you receive from a professional financial advisor is in your best interest?” Less than 30 percent of workers and retirees agree strongly with the statement; almost half of all workers (47 percent) and 33 percent of retirees “somewhat agree.”

Those numbers are far from a ringing endorsement.

“There is a Sword of Damocles hanging over the financial services business that is a remnant of 2008,” says Brent Green, a consumer marketing expert who specializes in the baby boomer demographic. “The industry is kidding itself if it doesn’t think that exists.”

“Boomers have a generational bias toward distrust that stems from its sociological roots in the culture of the 1960s, which was all about revolutionary change,” Green says. “Many of the companies that they rally around have tapped into that mindset by focusing on trustworthiness and authenticity: Whole Foods, Starbucks or Apple.” He thinks GenXers may be even more likely to flee to authentic offerings than the boomers—especially robo advisory and other technology-based services. “It’s a huge generalization, but GenXers tend to be more digitally proficient,” he says.

Important segments of the industry have fought tooth and nail against a standard that requires putting the interest of clients first when it comes to advice on retirement investments—despite the fact that nearly nine in 10 (88 percent) retirement account holders (the customers) think the best interest standard is important, according to an AARP survey earlier this year. For public consumption, the arguments have hinged on warnings that the rule will deprive middle-class households of the free “advice” they receive from commission-compensated advisors.

But Green sees the issue through a straightforward marketing lens. “Who out there would like to have a hip replacement where the doctor makes a decision on the technology to be used based on what is best for the doctor and the bottom line? It is such ridiculously common sense that people not only expect but demand honest and forthright advice no matter the situation—healthcare, buying a home or any other major part of our lives as consumers.”

A poll after the election found that just 29 percent of advisors put repeal of the rule at the top of their wish list for the new administration; tax cuts for small businesses are the top priority for most advisors.

And it’s not clear that dumping the DOL rule will be anywhere near the top of Donald Trump’s agenda. He took no position on the fiduciary rule as a candidate, but he has pledged to cut government regulation aggressively. And one of his advisors promised during the campaign to repeal the rule, even likening it to slavery. Financial services lobbyists have been trying to spike the Labor Department rule in the courts and through legislation; President Barack Obama vetoed Republican-sponsored legislation aimed at blocking it in June.

A poll by The National Association of Plan Advisors in the wake of the election found that nearly three-quarters of advisory firms are staying the course in preparing for the regulation, until such point that something changes. And many large players are getting ready, no matter what.

Notably, Bank of America Merrill Lynch has been preparing for a shift for several years. It plans to eliminate all commission-based options for its retirement accounts. Beginning in April—when the rule is scheduled for final implementation—commission-based IRAs will migrate to Merrill’s advisory platform, self-directed brokerage or its robo advisory service. That plan won’t change in the wake of the election, according to a Merrill source.

In fact, Merrill Lynch has rolled out an advertising campaign touting its commitment to fiduciary values, headlined, “We’re committed to your best interest. Not the status quo.”

For big brokerage firms like Merrill Lynch, the proof will be in the details, argues Kate McBride, chair of The Committee for the Fiduciary Standard—especially if the DOL rule is repealed or relaxed. “If a big branded firm could (make the transition) and let people in the door to see and verify … and make sure what they are doing can be benchmarked against (similar) vehicles, they may have something,” she says. “They could run away with a lot of business if they do it right—we would welcome that.” 

Here are some key issues for firms to consider as they shift to a fiduciary model, according to McBride:

  • Transparency: What kind of information will clients receive to understand their all-in costs, including advisory services products? How much is the firm making on the products? How much do representatives make?
  • Will clients be able to easily compare your investment products with those of peers?
  • Does your firm sell proprietary investment vehicles, and how will they be positioned in terms of cost and a best interest rationale for clients?
  • How will your firm go about the business of discussing with clients rollovers from employer plans to IRAs?

That last question is critical, since such a large portion of IRA investment comes from rollovers. A Merrill spokesman says the firm has developed a “comprehensive, systematic process which includes a detailed set of questions to review cost comparison, advised relationship support, features and benefits, to guide advisors to determine if rolling over from an employer-based plan to an IRA is in their ‘best interest.’” That sounds about right to me.

As Green puts it: “Authenticity in how a company presents itself is not a luxury; it is a necessity for the consumers of the future. We’re only going to trust the companies that are authentic and deliver on their promises.”

Mark Miller is a journalist and author who writes about trends in retirement and aging. He is a columnist for Reuters and also contributes to Morningstar and the AARP magazine.

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