Recent weeks have been rife with media coverage and speculation from industry experts about what’s ahead for the Department of Labor’s fiduciary rule, given the latest projected delays in the rule’s implementation. But firms, advisors and industry pundits who see the most recent implementation delays for the DOL rule as a sign that everything will go back to the way things were before it was ever proposed are mistaken in their approach.
The fiduciary rule—whether it’s delayed another 18 months or goes away entirely—represents an inflection point for independent advisors. As we all know, the fiduciary rule has forced nearly every advisor to take a hard look at their business, especially when it comes to their approach to wealth management. And what many have found is that making a few tweaks here and there may not be enough. The marketplace is now in tune with what it means to be a fiduciary, meaning clients will demand best interest advice going forward, even as fee compression trends continue.
Indeed, for many advisors, the situation may call for a complete overhaul of their business that enables them to transition away from a sales or product-focused practice, towards a business model that enables them to spend the majority of their time creating an advice-centric experience for their clients.
It’s incumbent on advisors, therefore, to continue to utilize the time they have to adopt a wealth management model that best supports their transition to an advice-centric experience model.
Cutting through all the DOL noise, advisors have three core options when it comes to deciding what kind of wealth management model to adopt going forward, each with its own pros and cons:
1. Rep As Portfolio Manager. The key benefit of this model is that it presents advisors with the greatest opportunity to potentially differentiate themselves. The drawback is that this approach is highly time consuming and requires more than just one professional to support it. All of this weighs on the ability of an advisor to grow his or her business, especially in a fiduciary era where the task of building deeper client relationships will already require significant added bandwidth. The other disadvantage, of course, is that managing individual portfolios for clients naturally entails a greater level of potential risk in a post-DOL world.
2. The Total Outsourcer. On the other side of the spectrum is the advisor who completely surrenders their investment processes to third-party provider. In an ideal world, this route creates massive scale and efficiency, and gives advisors assurances that they will be in compliance with the DOL rule, assuming those offerings were thoroughly vetted before being made available on their investment platform. Unconstrained by operational matters, advisors will, theoretically, have more time to grow their business and serve a greater number of clients. The potential downside of the total outsourcer model is that serving the high-net-worth segment—perhaps advisors’ best opportunity to grow—tends to demand more customization and personal attention than this approach can offer.