The
Labor Department's fiduciary rule and its potential impact on our industry has been reviewed and dissected over the past week. We've been focusing on how it may affect financial advisers' roles and plan sponsors' activities. Now it's time to get down to brass tacks: How will the DOL proposal affect a plan adviser's ability to get new business?
Currently, plan sponsors are encouraged to issue requests for proposals for their plan adviser every three to five years. This gives advisers the opportunity to edge into new business on a potential three-to-five-year cycle. You're right in thinking that a "recommended cycle" that ends somewhere in a three-year period isn't a promising growth prospect for an advisory firm. Additionally, the lack of fee disclosure in the space causes plan sponsors to not vet their current adviser practices as often as they should, and ultimately results in a low plan adviser turnover rate anyway.
Adviser Turnover
The proposed DOL rule will affect advisers' ability to get new business by sparking much-needed conversations between existing advisers and plan sponsors on fee models. These discussions will help honest plan advisers gain even more
trust from their clients while also revealing dishonest adviser practices, spurring turnover in the space.
(Related: Brokers brace for tumult if fiduciary rule goes through)
Additionally, new contracts that the DOL proposal will require plan sponsors to sign will open doors for new advisers to enter. Because plan sponsors will need to acknowledge in writing all potential conflicts of interest, as well as their full understanding of their adviser's services and fees, we will see plan sponsors doing deeper vetting of their advisers' offerings than ever before.
RFP Influx
The transparency created by the DOL's proposed rule will increase the frequency of RFPs conducted in our space. Plan sponsors may not necessarily want to replace their current adviser, but will conduct cyclical RFPs to fully grasp competing adviser offerings before signing any contracts. Now that advisers will be able to rely more on an RFP cycle, they will need to adjust their marketing strategies to highlight items the DOL proposal is bringing to the attention of plan sponsors.
(More: Retirement plan advisers brace for big changes)
First, advisers will need to make their fee model transparent and easy to understand. Second, they will need to prepare for new questions that may enter the RFP process, such as, "What potential conflicts of interest exist with the management of our account?" and "Do you adhere to the fiduciary standard of care and always do what is in the best interests of your clients?"
Some specialist advisers that identified "being a fiduciary" as a specialty may want to consider adding more services to differentiate themselves. The time when being a fiduciary was a competitive advantage will be long gone, and advisers will have to look for the next leg up to take advantage of new opportunities.
Kent Costello is the co-founder of InHub, a technology company and inventor of eRFP. You can reach him by email.
