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DOL Rule’s Impact: Industry Execs See Opportunity in Disruption

How one views the DOL’s final fiduciary rule depends on your vantage point and how you will have to apply the rule. That was the message of three prominent industry execs who participated in an April 19 NAPA 401(k) Summit panel discussion on the impact of the rule on their business models and operations.

Offering their insights were:

  • J. Fielding Miller, CEO of CAPTRUST Financial Advisors;

  • Edward O’Connor, Managing Director for Retirement Strategy at Morgan Stanley; and

  • William R. Chetney, CEO of GRP Advisor Alliance.

“This is a big win” for the RIA model, said Miller. Chetney said he considers it “interesting to see how broker-dealers react” and that it is a little challenging for them from some perspectives, but that it also creates some clarity. To O’Connor, “it’s a matter of interpretation” and the biggest challenge is that now “we have to think of the best way to document the best interest consideration for investors and to demonstrate it when challenged.”

All three were relieved that the point-of-sale provisions that were in the rule in its proposed form were removed from the final rule.

Disruptive Impact

The disruption is “tremendous” for advisors, in Chetney’s view. O’Connor agreed, saying that “there are going to be a lot of smaller firms that will be struggling to comply with the rule.” Miller was the most blunt of all, saying, “This is going to thin out the herd,” and calling it “prime hunting season for our industry.”

For good measure, O’Connor reminded attendees that the other shoe has yet to drop. “And let’s not forget, the SEC is coming. This is going to continue,” he said.

Stay Put?

Moderator Nevin Adams posed a question to the panel: Will the rule result in a trend of encouraging participants to keep their assets and accounts where they are, and to forgo the common practice of transferring them at times such as changing jobs?

Miller said he thinks so, responding that he thinks there will be less movement out of plans and that one of the results will be that there will be a lot more money in plans and left in plans. Chetney agreed, and said that because of the rule, plan sponsors and participants won’t leave as much of a trail as they had in the past as a result of changing jobs.

Advisors Still Needed

Does the rule put advisors in jeopardy? Not necessarily, the panelists said. “I don’t think we’ve dis-invented the advisor,” said Chetney. O’Connor was even more confident, remarking, “Clearly there’s a huge need for Americans to be helped” in building retirement income, and adding “individual responsibility is not going away. Individuals have to take care of their own lives.”

Gaze into the Crystal Ball

Adams asked the panelists to gaze into the crystal ball and offer their take on the rule’s effects five years from now.

“We see this as a really, really good opportunity to grow,” said Miller. Plan sponsors, he said, are “inundated with lots of information,” and his firm hopes that results in requests for proposals. “There is opportunity” in the disruption the rule creates, he said.

But Miller added that there is a risk — the rule it could result in a disclosure that nobody reads.

O’Connor said that the rule stresses that “you need to be a specialist in this business” and that as a result of the rule’s promulgation, “rollovers will be less important in anyone’s business model” and that the multiple employer plan model will be embraced and accepted to a greater degree than it is now.

There is a “real opportunity for people to consider what they can do for customers that they don’t do now,” said Chetney, adding that the rule provides “a real opportunity to re-envision what we do for plan sponsors and participants.”