Fiduciary Rule Will Impact Business Practices

“Positioning Asset Managers to Capitalize on Opportunities Created by the DOL Fiduciary Rule” aims to help the asset industry understand how key rule changes might provide new opportunities to address the needs of fiduciaries that provide fee-based advice.

The DOL’s rule (now with the Office of Management and Budget) if implemented as proposed, would redefine fiduciary roles and responsibilities for the advisory business while expanding transparency on fees and advice on retirement saving, the paper contends.  

According to Julia Binder, head of strategic marketing research for DST kasina and the paper’s lead author, the rule will likely accelerate existing trends in financial services, such as the use of automated advice providers, the move from higher-cost actively managed products to lower-cost passive investment products, and the shift from commission-based to fee-based accounts. 

Steven Miyao, president, DST kasina, says that whether advisers build automated advice into their practices depends on the client base they are serving and whether automated advice is something that plan participants are receptive to. “Many plan participant websites already feature automated aspects, for example, to increase the percentage that is contributed for retirement funds, to see what happens if a loan is requested and so on,” he tells PLANADVISER.

“Automated advice is part of the online experience for many of us today, whether we are purchasing a home, an automobile, etc. We expect automated advice to proliferate in retirement planning, too.”

“If passively managed funds meet the requirement that they are in the client’s best interest, advisers may recommend them,” Miyao says. “But there is a role for actively managed products, too, and there will likely be situations where a case can be made that they are in the client’s best interest.”

The paper notes that financial advisers were the most common source of information for investors researching the decision to roll over money from their former employer’s retirement plan into a traditional IRA. Sixty-one percent of traditional IRA-owning households consulted a financial professional for advice. The proposed regulations will likely govern any recommendation to roll money out of a qualified plan, and the investment advice provided once a rollover is completed. The rules should apply to plan advisers who work with individual participants, and to independent advisers—unaffiliated with the plan or sponsor—who are advising clients on their retirement rollovers.

In addition to key questions that a firm’s DOL working group should consider with regard to distribution, marketing, operations and product strategy, the DST kasina white paper includes recommendations for: distribution, marketing, operations and product strategy. Considerations include how an organization will adapt to new disclosure requirements; prohibited compensation models; expanded regulatory authority over financial advice to retirement accountholders; and rethinking call center support, among other topics.

Miyao says the rule may not have much impact for the service models of many retirement plan advisers. “Many already adhere to the fiduciary standard,” he points out. The rule requires advisers to learn all they can about their client’s needs, have a rigorous process to identify investments that meet the client's needs and are in the client’s best interest, and have a robust process to monitor those investments. “The DOL rule will ensure that they all do.”

“The final rule will cause short-term disruption for firms that are not already anticipating and responding to key industry trends,” Miyao says. Those firms that proactively manage their product strategy, distributor relationships, technology infrastructure, and communications are the ones that will thrive during times of significant industry change.

DST kasina’s “Positioning Asset Managers to Capitalize on Opportunities Created by the DOL Fiduciary Rule” white paper can be downloaded free from DST kasina’s website.