“They need to make sure their reps understand the complex products they are recommending. DOL and IRS will be looking for a good-faith effort before they punish anyone. They will also give guidance on the exemptions that are allowed,” she adds
At the same time, most firms already have put effort into complying.
“A lot of broker-dealers have invested millions of dollars to enable them to compete in the post-DOL retirement space. New technology is going to continue to be needed or they will wash out of the qualified retirement business. Advisors also have to know that complying is going to come with a higher degree of paperwork,” says Jason Grantz, director of institutional retirement consulting at Unified Trust Company based in Lexington, Ken., a retirement plan provider with $4 billion in assets. He also sits on the Government Affairs Committee of the National Association of Plan Advisors.
“People are now asking for a fiduciary, so advisors should move forward -- go to fee-based with level fees. Some advisors I have talked to want to continue to do commission-based work, but that is going to be a problem. There will be specific documentation that has to be added and clients may have more forms to sign to acknowledge they were told certain things,” adds David Rae, vice president of client services at Trilogy Financial Services, Los Angeles, with $2 billion in client assets.
If all firms are fiduciaries, at least for retirement planning, it may be harder to differentiate themselves from the competition.
“Some firms are going to continue to try to serve everyone, but many will develop a niche clientele and specialize, such as dealing with education issues or the LGBT population. The services and capabilities the firm has will also differentiate them,” says Alex Benke, an advisor at Betterment, a financial services firm based in New York City that provides outsourcing services for advisory firms and has client-facing advisors and more than $9 billion in AUM, according to the latest ADV.
“Price will also be a differentiator. If firms can’t do commissions, they have to think where the revenue is going to come from and how to use technology and outsourcing to bring costs down. Betterment is a huge supporter of the rule. We think those who say that this is going to hurt small investors are wrong,” he adds.
The Insured Retirement Institute disagrees. “IRI remains committed to supporting a best interest standard; however, the DOL rule is already having harmful impacts on Americans plannng for retirement,” IRI said in a statement. “Financial professionals will stop serving small-account savers, orphaning these Americans from the financial help they need. A wide array of financial service providers are responding to the rule’s litigation risks by limiting investment types and products they will recomment.”
The American Council of Life Insurers seconded the idea that the DOL rule would limit people’s options. “As burrently written, the regulation limits retirement savers’access to education and information about annuities, the only financial products in the marketplace that guarantee lifetme imcome.” the council said in a statement.