Firms ‘Putting Their Pencils Down’ on Fiduciary Rule

The DOL fiduciary rule may be on the horizon. Or not. But regardless, there will be a need and role for advisors — it just may be different than it was beforehand, avowed a trio of industry execs at a March 20 session of the 2017 NAPA 401(k) Summit.

Panelists at the “super session” included facilitator Joe Gill, Vice President, Retirement Solutions, Prudential Investments; William Chetney, GRP Advisor Alliance, GRP; and Edward O’Connor, Managing Director, Morgan Stanley.

The rule has certainly generated discussion, debate and angst for the better part of six years. And there’s no end in sight — despite being in effect, the rule is not yet applicable. And just in time, a new administration arrived — one that is skeptical of, if not hostile to, the rule. And for advisors that spells frustration at best, and difficulty at worst.

“It’s very problematic,” said O’Connor, who expects that there will “very likely be a succession” of 60-day delays in the implementation of the rule. As a result of the current 60-day delay and the prospect that a protracted period of delay and confusion lies ahead, he said, “a lot of firms have just put their pencils down.” He added, “we’re very hunkered down to be ready.”

But the debate, and the ultimate fate of the rule, may not matter, according to O’Connor. Morgan Stanley is looking beyond the DOL rule, he reported, which means embracing the spirit behind it. “We need to get to a higher standard of care regardless of where the DOL rule goes,” O’Connor said, adding that the rule has already sparked product innovation.

Chetney agreed, but noted that if the precedent set by the six years it took to implement the 408(b)(2) regulation is any indication, the fiduciary rule could be delayed even more. “I wasn’t overly concerned” about its application, he said.

Especially painful, said Gill, will be the rule’s effect on rollovers. O’Connor sounded a similar note, remarking, “If you’re primarily in the rollover business, you’ve really got to rethink that.”

But, Chetney pointed out, there are questions about advice that concern more than rollovers. “This is where we broaden the services,” said O’Connor, for instance through conversations about financial wellness. Even the DOL, he said, did not understand the value of those additional questions.

Another result of the rule: Generalists “are not going away,” said O’Connor. He said he thinks they are here to stay, and suggested, “Think more about leveraging generalists.”

Likewise, financial wellness is not going anywhere, said Chetney. “Three years from now it will be in every box of cereal,” he predicted, adding that if an advisor pre-sells it with clients, they are going to do better.

Revenue sharing, in light of the rule, evokes the thought, “Let’s get the handcuffs now,” said O’Connor. He said that it is “not as transparent as it needs to be,” but that doesn’t mean an advisor can’t make money, even under the rule. “It’s not zero revenue, it’s transparent revenues,” he said. “We have to be comfortable with people knowing how much they pay us,” he added.

And don’t forget the effect of other factors such as health care, O’Connor reminded. “You have to deal with health care,” he said, saying it’s “inevitable that we are incorporating that more and more in our conversations.” He added that advisors “need to get into it and crack the code of how to make it economically viable.”

Remember that “you’re the advisor, posing the questions and educating,” O’Connor told attendees. He said that “we need to talk more broadly than what the DOL is talking about right now.” And he recommended that advisors document what they do for their clients. “Many times, an advisor does things they don’t get paid for. We have to do a better job of documenting that.”

But O’Connor also sounded a note of optimism. “They’re always going to come back to the advisor,” he said.



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