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Advisers must seize opportunity to deliver best-interest advice to clients

New fiduciary standard will lead industry forward regardless of DOL rule outcome

Apr 3, 2017 @ 4:27 pm

By James Lumberg

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Regulatory uncertainty surrounding the U.S. Department of Labor's fiduciary rule is top of mind for financial advisers and investors alike, and for good reason. What was once expected to be a swiftly-implemented rule has now been delayed and faces regulatory uncertainty. Regardless of whether the rule is ultimately enacted, though, the opportunity for financial advisers to deliver best-interest advice and establishing a fiduciary standard with their clients will prevail.

(More: Savvy RIAs are waving the fiduciary flag)

An important step to becoming an adviser of the future is to embrace best-interest advice as a foundation for developing and maintaining trusted and enduring client relationships. Forward-thinking advisers understand that best-interest advice is the cornerstone for becoming an essential adviser to clients. Best-interest advice requires advisers to have a comprehensive view and understanding of their client's unique situation, which in turn provides a basis for delivering advice that is highly valued and, ultimately, essential to providing better investment outcomes. Additionally, there is a growing expectation and awareness among investors that if they are paying for advice, it should be in their best interest. Finally, incorporating a fiduciary practice standard now will allow the adviser to stay competitive in the industry and will also help put both the adviser and client ahead of the curve for when the DOL rule, or a version of it, could be enacted.

Offering best-interest advice to meet regulatory standards can seem daunting, so it is imperative that advisers of the future are taking advantage of available resources, including technology. With multiple clients, it can take a significant amount of time for advisers to establish and maintain a comprehensive understanding of each client's unique financial situation. To do so efficiently, advisers should utilize resources to collect and manage client account data, establish a financial plan and identify investment products that match with a client's best interest. Using technology, advisers can streamline processes and focus their time on building and maintaining strong client relationships rooted in a fiduciary standard. Recent findings from Aite Group show advisers who have integrated technology into their practice have more time to focus on client activities and investment management, rather than nitty gritty operational tasks and investment research. Advisers can also utilize technology to satisfy a variety of needs around current and potential regulatory requirements for documentation, disclosures and rationale.

(More: DOL fiduciary rule changes not one size fits all)

So you may be wondering, what will the future of advising look like once new fiduciary standards of care are established? Ultimately, there will be a clear differentiation between advice that is in the client's best interest and advice that is just suitable, and advisers will be required to clearly articulate the advice they're giving to ensure adviser-client alignment. Maintaining this level of transparency will give advisers a more thorough, precise understanding of clients and their interests. In the future, there will be a significant opportunity for financial adviser education, as well, since advice-givers will have to not only be familiar with financial products, but will also need to have a more complete understanding and visibility into a client's complete financial position to understand their investment needs.

Regardless of the DOL fiduciary rule's status, a new fiduciary standard will be at the forefront of the wealth management industry moving forward. In order to become an essential adviser of the future, financial advisers must look at best-interest advice as a benefit, not a setback, and embrace technology to streamline operations and spend more time cultivating client relationships.

The future of the industry is bright, with abundant opportunities for more adviser education and deeper adviser-client relationships and alignment. By embracing a fiduciary standard now, financial advisers will be well positioned to become essential advisers of the future.

(More: The case for more prominently disclosing compensation and conflicts of interest)

James Lumberg is co-founder and executive vice president of Envestnet.

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