Most advisors are concerned that the Department of Labor’s (DOL) fiduciary proposal will have a negative impact on how they do business, according to a new survey.
The survey of 485 advisors by Fidelity Institutional found that three-quarters expect to reevaluate the types of clients they serve, and nearly two-thirds (62%) plan to either let go of some smaller clients or transition them to other firms. More than 7 out of 10 (71%) anticipate increased client frustration.
Similarly, advisor respondents anticipate a negative impact on:
More than half (55%) of registered investment advisors feel the rule will increase time spent on compliance-related tasks, and 75% of advisors expect service costs per client to increase as a result of the rule.
Compensation Moves
Firms expect a 10 percentage point increase in their use of fee-based compensation once the rule is effective, offsetting a drop in commissions. Two-thirds anticipate using a level compensation model for both retirement and non-retirement assets following the ruling, while a similar percentage plan to reevaluate the products they recommend and the associated fees charged. Moreover, the report’s authors note that advisors plan to move away from variable annuities, instead recommending managed accounts.
Despite all those projected impacts, 53% of advisors say that their firms plan to wait until the DOL rule is finalized before undertaking any substantial action, according to the survey.
6 Ways to Prepare
However, for those who don’t want to wait, Fidelity offers some suggestions in the “Six Ways to Help Prepare for the Proposed DOL Investment Advice Rule” survey:
1. Develop a fact base for your existing retirement business. Understand the full scope of your firm’s retirement business.
2. Review business practices and procedures. Consider carefully reviewing business practices and procedures in several key areas, including education, rollovers and referrals.
3. Understand the potential financial impact of the proposed rules. Consider high-level scenario planning to better understand the potential revenue impact and technology and compliance costs to implement provisions of the rule.
4. Explore potential new business models and segmentation strategies. The rule includes a number of approaches to compliance. Firms may consider different models for different segments of their clients and different types of advisors.
5. Identify changes to infrastructure and support that are likely to be essential for rule implementation. Firms may look to invest in technology and/or additional talent to ensure compliance. Investing in improved workflow may also help reduce the rule’s new costs and time requirements.
6. Consult with internal and external experts as you develop your plans. Given the complexity of the proposed rule, firms should engage legal, tax and compliance experts to help them fully understand its implications and ensure that their plans comply with the new regulations.
The survey of 485 advisors by Fidelity Institutional found that three-quarters expect to reevaluate the types of clients they serve, and nearly two-thirds (62%) plan to either let go of some smaller clients or transition them to other firms. More than 7 out of 10 (71%) anticipate increased client frustration.
Similarly, advisor respondents anticipate a negative impact on:
- compliance-related tasks (75%);
- cost of doing business (68%); and
- advisor compensation (58%).
More than half (55%) of registered investment advisors feel the rule will increase time spent on compliance-related tasks, and 75% of advisors expect service costs per client to increase as a result of the rule.
Compensation Moves
Firms expect a 10 percentage point increase in their use of fee-based compensation once the rule is effective, offsetting a drop in commissions. Two-thirds anticipate using a level compensation model for both retirement and non-retirement assets following the ruling, while a similar percentage plan to reevaluate the products they recommend and the associated fees charged. Moreover, the report’s authors note that advisors plan to move away from variable annuities, instead recommending managed accounts.
Despite all those projected impacts, 53% of advisors say that their firms plan to wait until the DOL rule is finalized before undertaking any substantial action, according to the survey.
6 Ways to Prepare
However, for those who don’t want to wait, Fidelity offers some suggestions in the “Six Ways to Help Prepare for the Proposed DOL Investment Advice Rule” survey:
1. Develop a fact base for your existing retirement business. Understand the full scope of your firm’s retirement business.
2. Review business practices and procedures. Consider carefully reviewing business practices and procedures in several key areas, including education, rollovers and referrals.
3. Understand the potential financial impact of the proposed rules. Consider high-level scenario planning to better understand the potential revenue impact and technology and compliance costs to implement provisions of the rule.
4. Explore potential new business models and segmentation strategies. The rule includes a number of approaches to compliance. Firms may consider different models for different segments of their clients and different types of advisors.
5. Identify changes to infrastructure and support that are likely to be essential for rule implementation. Firms may look to invest in technology and/or additional talent to ensure compliance. Investing in improved workflow may also help reduce the rule’s new costs and time requirements.
6. Consult with internal and external experts as you develop your plans. Given the complexity of the proposed rule, firms should engage legal, tax and compliance experts to help them fully understand its implications and ensure that their plans comply with the new regulations.
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