Position your firm to compete in a world under the DOL fiduciary rule

If your firm provides investment advice to retirement plans, plan fiduciaries or individual retirement investors, you may want to begin planning for the Department of Labor’s investment advice rule’s potential impact on how you do business. Firms that position themselves best to compete in a world under the new DOL rule are likely to be the ones who not only comply with the rule, but thoroughly assess their businesses and proactively adjust.

COMPLY

Although the new DOL rule may be disruptive, compliance will be the cost of entry. Whether you operate as a broker-dealer, bank, wirehouse, registered investment adviser, retirement record keeper or an insurance company, advisers who work with retirement plans or clients planning for retirement will need to comply. 

Firms should begin planning for the final rule by looking at all of their operations capabilities to understand which of their processes will likely be affected. This includes how they approach record-keeping, disclosures and related workflows, to name a few.

Also, consider carefully reviewing your business practices and procedures in several areas, including but not limited to: education, rollovers and referrals. Each of these areas could be impacted by the rule. Currently, advisers may not consider these to be investment advice, but the rule proposal encompasses them in many instances.

Given the complexity of the proposed rules, it would be necessary to consult with legal, tax and compliance experts both internally and, as necessary, outside your firm to help you fully understand the rules and ensure your plans for implementation will be in complete compliance.

ASSESS

Beyond determining what is needed to simply comply with the rule, what is next? You will likely want to dig in and conduct a thorough assessment of your business. This will help you move from simply complying with the rule to proactively adjusting your business to better compete in a world under the new DOL rule.

Begin with your firm’s retirement business. Build a fact base. What portion of your business is in retirement assets? How is that serviced today? What is your revenue and cost model for your retirement business? What about for your client relationships with sizeable retirement assets?

Finally, make sure you fully understand the impact of the rule on your firm’s business model, including revenue and costs. Understanding the details of your revenues (e.g., commissions, other product-related revenue, client-paid fees) and costs (e.g., acquisition costs, servicing costs, overhead) will improve your understanding of the economic impacts of the new rule to your practice.

ADJUST

You may want to consider different service models for different segments of your clients, while taking into account the different types of advisers you employ. Firms with a diverse client or adviser base should consider whether they ought to leverage various exemptions, carve-outs, and different service and support models. Consider the fit of each model with the needs of your target client and your firm’s value proposition. Looking at the rule through the lens of your client’s experience may help you maintain your competitive advantage.

Make sure your firm has access to all of the required skill sets needed to operate as an ERISA fiduciary, including compliance staff and up-to-date technology. Which of these can you source internally? Where will you look to a third party for these capabilities? To offset rule-driven cost increases, institute greater efficiency through workflow automation.

And as with any changes that impact client experience, make client communication a top priority. Transparency and an explanation of what you are doing, and why, ahead of any major changes goes a long way toward reassuring clients.

The new DOL rule may present a series of challenges to your firm, but with thoughtful planning and thorough preparation, firms have an opportunity to position themselves for future growth and profitability.

Tom Corra is executive vice president and chief operating officer of Fidelity Clearing & Custody Solutions.