The Holistic Fiduciary Ruling
Beginning April 10, 2017, the new Best Interest Contract Exemption and the Principal Transactions Exemption DOL ruling will begin a phased implementation that will allow for transition until January 1, 2018. Advisors, marketing organizations, carriers -- and everyone in between – are impacted by the ruling. The Labor Department indicated that investors waste $17 billion annually in excessive advisory fees as a major reason for this legislation..
This ruling provides a fiduciary standard to the $25 trillion retirement services market and places the best interest of the client before advisor profits. This shift, from a transactional to a comprehensive planning approach will be radical for many.
As mentioned above, the first phase of the fiduciary rule will start in April with full implementation targeted for January 1, 2018. One of the most challenging issues is the huge shift to a fiduciary standard when advisors are providing guidance on retirement accounts -- which include 401(k) plan assets, individual retirement accounts, or other qualified assets saved for retirement. Changes will be required to meet the DOL requirements and disruption is inevitable.
While colossal changes for the industry are around the corner, the outcome shouldn’t be negative. Once advisors and other industry entities have crossed the hurdle to a fiduciary standard, the net positive effects, could far outweigh the short-term negatives. But, there’s no way to avoid that short term rough ride.
For advisors, whether you currently operate under a commission-based model, a fee-based one, or a hybrid of the two this transformation is quite real.
The choice is yours: either it’s a time of fear and uncertainty or it’s an opportunity to gain new skills to compete and provide guidance with a holistic approach. You certainly want to avoid any hastily-made processes in response to this legislation!
Between now and the April deadline it is essential that you educate yourself on the holistic planning process and adapt accordingly. Utilize a training program on how to specifically take a comprehensive view when working with clients while focusing on how to abide by the best interest standard when providing advice.
Only 23% of advisors in a recent survey (see below) indicated that they are aware of their firms’ plans with respect to adoption of the BICE, while 78% “identified the BICE as one of the greatest areas of impact to their business.” Clearly, too many advisors who are willing to make the necessary changes are in a difficult position -- which further illustrates the seriousness for advisors to get a plan in place for implementing new best interest standards.
QBI Fiduciary Administration, LLC has a business model designed to provide our clients peace of mind in fulfilling their duties as fiduciaries for plan administration. Our expertise delivers the services that enable the client to be administered to at the highest level while reducing exposure to errors and omissions. Give Patricia Neal Jensen a call at 818.567.1540 and we will not only provide clarity on how to holistically advise, but will also help you to simplify how to implement a fiduciary friendly planning process.
A recent Nationwide Retirement Institute survey found:
- 87% of advisors, are considering changes to their business model
- 43% percent may plan to expand services offered to more holistic planning
- 26% percent may plan to focus on non-qualified accounts
- 42% of advisors indicated they are aware of their firm’s timeline for implementation or what training or support their firm will provide
- 33% are aware of their firm’s new compliance procedures.
In order to survive in financial services, it’s vital to make the shift from transaction-based business to a service-oriented model. It is imperative that the industry does a better job for advisors in educating them on what’s taking place, what needs to be done, how to get that done, and what the timelines are to reach those goals.
Other areas of business to examine in order to strengthen your practice and adjust to this legislation:
- Bonuses, trips and incentives are looked upon negatively by the DOL. You need to make sure any incentives being promised by an organization fits within the latitude of the DOL and doesn’t infringe on the best interest of the client. Ask yourself: “Is this recommendation best for the client? Does this recommendation avoid any and all conflicts of interest?” If an advisor is receiving “soft dollars” or any additional compensation for recommendations provided, this could be in violation of the DOL rule.
- To progress in this new environment, individuals and organizations should look at diversification. Perhaps add a tax practice within your advisory firm. It could be additional revenue that supplements the financial services work you already perform and a separate profit line independent of the financial business. A tax practice is not subject to the regulatory oversight of the DOL ruling.
- Planning fees could be another opportunity for new or expanded revenue. Taking a client through a holistic planning process requires more expertise, time and resources, which makes charging a fee for the plan reasonable.
Advisors who make the evolution from a transactional-based business to a holistic model, will have immense opportunities.
- There are 76 million baby boomers who have, or will hit retirement age following the DOL ruling implementation.
- Many advisors will be unwilling to change and will phase out of the business.
Shouldn’t you consider filling that huge hole with a strong, comprehensive planning practice?
Contact QBI Fiduciary Administration at 818.657.1540 for our professional guidance to ensuring your transition in meeting the April 2017 and January 2018 deadlines.