DOL Webinar Recap

by Doug Lennick

During a webinar held on February 29, 2016, think2peform CEO, Doug Lennick, shared his thoughts with more than 350 financial professionals on how to address impending industry changes. The following is an overview of his presentation and what actions you can take now to prepare.

Situation: Proposed DoL Fiduciary Standard Rule

Last year President Obama tasked the Department of Labor (DOL) with updating the rules and regulations for retirement advisors.

“Today, I’m calling on the Department of Labor to update the rules and requirements that retirement advisors put the best interests of their clients above their own financial interests. It’s a very simple principle: You want to give financial advice; you’ve got to put your client’s interests first.”

President Barack Obama, February 23, 2015

If the proposed DOL Fiduciary Standard Rule, or some variation, passes, it will greatly impact the financial planning industry and how financial advisors interact with clients. Many are calling this ruling the ACA of the financial industry. And if enacted, applicable firms will have a short time to implement the regulation.

 The main objectives of the proposed ruling:

  • Develop and enforce a fiduciary standard
  • Raise investment advice standards for retirement accounts
  • Reign in Conflicts of Interest for financial advisors working with 401(k) and Individual Retirement Accounts

 DL: There is definitely a difference between a fiduciary standard and suitability standard, as many CFPs already know. It comes down to transparency and simplicity in an industry known for neitherAs we think about this standard, and raising the standard for retirement accounts, we have to consider the duty of loyalty and the duty of due diligence. In the duty of loyalty, we must put our clients’ best interests first. Although how this best interest gets scored may be different in the future. In the duty of due diligence, it will be imperative to know your products very well, including their features, benefits and costs. From the work we’ve done in the industry, we have a reasonable degree of confidence that some financial advisors don’t know their products as well as they will need to moving forward.

 Regarding conflict of interest, there will need to be a warrant showing the broker-dealer disclosure and mitigation of any conflict of interest. A conflict of interest may also arise as assets under management move to assets under distribution. As advisor income drops every time a withdrawal is taken, we cannot deny that a percentage of advisors may act in their own financial interest and not that of the investor. Moving to advice-based fees can minimize this effect.  Advice-based fees are not fee-based advice.

 Exceptions to the proposed rule:

  • General education – Not presenting specifics about products
  • Client directs which assets to purchase
  • “Best interest contract exemption” (BICE)
    • Advisors and firms can set their own compensation practices as long as:
      • Clients’ best interests placed first
      • Conflicts of interest are disclosed

 DL: Many advisors will need to go back to every person they’ve prepared a retirement account for to obtain a signed Best Interest Contract Exemption (BICE), which may prove problematic. If you’re paid a commission, you’ll need to evaluate if you are providing the lifetime service you may have promised when you sold the product. 

What advisor-client relationships are best positioned to adapt to this ruling?

DL: Many advisors we’ve worked with are already in a pretty good position. They’ve moved from the role of selling commodities toward the value they deliver as advisors. In these cases, some companies will easily adapt to the new changes and use it as an opportunity for client recruitment and acquisition.

Generating results under the new ruling:

Macro Economics + Business model + Leadership Effectiveness = Business Results

In this formula for business results, two elements are within your control: Your business model and your leadership effectiveness.

DL: Going forward, I see a business model where advice is the value that the financial advisor brings and the products are used to implement the advice. Financial planning products are commodities. The products are important, the investments are important, but effective behavioral use of the products is more important. The business model of tomorrow will shift from product compensation to advice compensation. The value to the investor will be delivered through the advice associated with the behavioral use of the product. Combining technical competencies with Behavioral Financial Advice will improve leadership effectiveness and when combined with the advice-based fees will allow financial advisors to drive business results. To assist financial advisors in implementing behavioral financial advice into their practice, think2perform offers a BFA designation, approved by FINRA, through a strategic relationship with Kaplan University.

Change is coming, will you stay relevant?

In our webinar poll, 94% of attendees affirmed they would be willing to change their business model.

Lennick believes the proposed DOL Fiduciary Standard Ruling is the tip of the iceberg: “This is going to happen,” says Lennick. “It may morph as to how, and there may be push back, but, my belief is that it’s starting with retirement and it won’t end there.”

For information on how to implement these changes with greater ease and benefit from the value of the behavioral financial advice model, contact Ryan Goulart. 

Click here for the recording

Click here for the presentation

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