3 Ways To Prepare For The Impending DOL Fiduciary Rule

DOL Fiduciary Ruling

DOL Secretary Tom Perez (Image courtesy of the Department of Labor)

The Department of Labor’s Fiduciary Rule is here to stay. Released publicly on April 6th, the conversation is now transitioning from debate to preparation. Many advisors are adopting a “wait and see” approach to the rule, with plans to adapt their business once the rule takes effect next year. Many experts are warning against this position. Businesses need to start planning now.

Though the rule has been heavily discussed in the financial industry for the last year, the majority of the general public has no idea what’s coming or how it will affect them. And when the news does hit the mainstream media, there will be a lot of fear and confusion. What does this mean for me? How will this impact my investments? Who do I trust now?

First, be sure you understand the implications the ruling will have on your clients. The law will have the largest impact on smaller retirement accounts ($25,000 or less). You’ll want to calm your clients’ fears by explaining what this ruling means for them. Though it will bring about a change in your relationship, be sure to detail what value you can add to your relationship to compensate for these impending changes.

Next, look at your book of business and segment your clients into groups. John Anderson, the head of practice management at SEI Advisor Network, recommends creating 3 groups:

  1. Clients you should move now. This would mean moving clients with commission-based accounts  to fee-based accounts.
  2. Clients you want to retain.This group would include clients with certain annuities that would garner large fees if moved immediately.
  3. Clients that are too small or will become unprofitable.This group should be moved to a different investment model, like a techno or robo advisor.

Lastly, take advantage of technology. CRM systems are quickly adapting their tools and functionality to monitor and ensure compliance. In addition to reducing your costs and improving your efficiency, technology can track everything you do for clients, help accurately profile their risk and make suggestions that best fit their needs, ensuring that you not only meet your fiduciary obligations, but can prove it as well, if needed.

Once the rule is in place, there will be more clarity for advisors and permanent changes can be implemented then. Although the rule has already been released, keep in mind that the effective date is not the same as the compliance date. The compliance date is currently expected to take place eight months after the effective date, giving you until the first quarter of 2017 to implement necessary changes and ensure compliance.

If you have questions about the DOL’s Fiduciary Rule, read their fact sheet, here.


*Editor’s Note: This post was originally posted in March 2016 and has been updated for accuracy and comprehensiveness. 

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