With all the talk and activity around the Labor Department's fiduciary rule, you might have imagined a dramatically different world for advisers when they came to work June 9, the rule's official implementation date.
But, for the vast majority of retirement plan advisers, there was little or no difference.
Regardless, the fiduciary rule, which raises investment-advice standards for retirement accounts, is a landmark event that
represents both an opportunity and threat, depending on where advisers and plan providers sit.
For "elite" advisers specializing in 401(k) plans and some core plan advisers, a sort of middle-tier group who already act as a fiduciary to plans and charge a level fee for service, the rule changes very little. Most see the changes as an opportunity, if not a temporary administrative burden.
But for less experienced plan advisers, and some broker-dealers and providers, including RIA aggregators, defined-contribution record keepers and investment-only firms, changes could be prolific.
Less experienced plan advisers will react in one of three ways, listed below in the order of what is most likely:
"Catch me if you can": Advisers will continue as is, betting their broker-dealer or regulators will not catch them.
"Double down": Advisers will see the DOL rule as an opportunity to do more plan work, and get the necessary training and experience.
"Fold": Advisers will ditch the business. Some advisers will conduct a "fire sale" of their 401(k) business before the end of the year, garnering as much revenue as possible through upfront finder's fees.
Broker-dealers will encourage more advisers to get certified by them to be able to work as a fiduciary. They are likely to require non-certified advisers to
partner with fiduciary advisers on plans larger than $10 million, and force them to work with third-party fiduciary services or under formulaic solutions for smaller plans.
The DOL fiduciary rule will also accelerate
consolidation of record keepers and money managers as broker-dealers limit the number of providers and fund families they allow their advisers to recommend. Elite advisers and RIA aggregators, which
acquire RIAs or have them affiliate with the aggregator's RIA and/or broker-dealer to gain scale, will follow suit — something they should have done anyway.
So is the DOL rule a threat or opportunity? That depends on your answers to a few questions.
Employers sponsoring defined contribution plans will become more careful about selecting and monitoring their plan adviser, due to heightened awareness resulting from the rule. While good for experienced advisers, will plan sponsors focus on fees or overall adviser value?
There will be opportunities to buy books of businesses and partner with advisers who fold. But partnering means sharing, which is difficult as advisor fees decline. And, how will the acquiring advisers raise capital to buy businesses?
With thousands and thousands of advisers now a fiduciary for the first time, how will those already operating as fiduciaries distinguish themselves?
Lawsuits are more likely, especially when the market turns for the worse. Acting as a fiduciary by definition means increased liability.
As broker-dealers move to limit exposure, some elite advisers will be pushed to move to a more flexible, independent model, which is good for aggregators.
So, when it comes to retirement plans, the DOL fiduciary rule is forcing advisers to decide whether they want to be disruptors or be disrupted. Which one will you be?
Fred Barstein is the founder and CEO of The Retirement Advisor University and The Plan Sponsor University. He is also a contributing editor for InvestmentNews' Retirement Plan Adviser newsletter.
