Joe Heider is president of Cirrus Wealth Management, a firm he describes as a small independent wealth management shop offering comprehensive retirement, estate, tax and business planning solutions. Cirrus also has a sister firm that services several hundred retirement plan clients.
Like pretty much every adviser that services small retirement plans and wealth management clients alike, Heider’s work in the last few years has been pretty dramatically impacted by the ongoing rollout of the Department of Labor (DOL) fiduciary rule expansion. In fact, doing both wealth management and corporate retirement plan work, his firm operates right in the space where the most severe “unintended consequences” of the fiduciary rule were expected to play out. For this reason the firm is in an interesting position to talk about how fiduciary rule uncertainty—brought to a head once again by the recent 5th U.S. Circuit Court of Appeals decision to vacate the rulemaking—is impacting the business and its clients.
“Most of our 401(k) and cash balance plans that we service are at companies with fewer than 100 people,” Heider observes. “We have a couple plans with a few hundred participants, but we really look like the footprint of Northern Ohio, where we operate. There are a lot of small manufacturing firms and specialty companies, along with large medical and legal practices. These companies and their employees really desire and value our advice.”
Asked whether the regulatory machinations of the past weeks and months have made it harder to plan for the future and structure new client offerings, Heider agrees there “has been a little bit of that,” but really the firm has maintained its footing by keeping its head down and focusing on excellent client service.
“Part of what has helped us maintain our direction is that, whether or not it is formally written out in the client service agreements, we strive to act as a best-interest fiduciary to our clients,” Heider says. “This is crucial for feeling confident in this uncertain marketplace. Particularly when it comes to the parts of the business that touch on 401(k) plans, we will continue to view this as extremely important, come what may with the fiduciary rule.”
Where the uncertainty has had some impact on Cirrus and its clients, Heider candidly admits, is with respect to individual retirement account (IRA) rollovers and the ability to offer advice and support on annuities and structured retirement income products.
“We don’t have to get into all the details of how the fiduciary rule as crafted by the DOL created significant new restrictions and required exemptions for serving 401(k) plans while also doing rollover work—it has been something of a minor challenge for us,” Heider says. “In some limited cases, the issue became, how do you operate and serve your client if they want to use some form of guarantee products and annuities? We had practical questions about what was the best way to go about structuring this business and setting fees and commission structures under the fiduciary rule. These concerns may be eased somewhat, with the new 5th Circuit ruling, but it’s still too soon to say for certain.”
Despite the previous challenges, Heider strongly fees the overall experience of the DOL fiduciary rule implementation has been good for the retirement planning and advisory industries at large. In fact he expects the rule, even if it is not appealed by DOL and allowed to lapse on the order of the 5th Circuit, will continue to have a positive impact over time.
“Whether the DOL rule is going away or not, we have seen providers that service these areas already take a refreshing look at their compensation and service structures—to the benefit of end clients, I believe,” Heider says. “The industry is not going to turn back on this work, in my opinion. That cat is already out of the bag because we have been moving down this road toward lower and more transparent fees for years now. There is already less focus on one-and-done, commission-based products.”
Taking the risk of speculating as to what comes next in the DOL fiduciary rule sage, Heider says he “finds it interesting to contemplate whether the Securities and Exchange Commission (SEC) will view this as an opportunity to take this effort back over, versus other regulatory institutions.”
“The bottom line is that I hope we are going to end up with the best of both worlds—with ongoing improvements in product and services coming at the same time that we are gaining more clarity on the duties of prudence and loyalty,” Heider concludes. “Overall the rulemaking has been a net positive. With some changes, we have more or less been able to provide the same advice and products to our clients—but I can tell you that we have had to shift the way the products are structured and paid for. The fee structure has improved, frankly. Insurance companies in particular are attempting to simplify a very complex product set, and in some cases they are having to adjust away from products that were made complex on purpose. That’s a bit of a cynical view of the insurance industry, of course, but my point is that the rulemaking, again, has already led to important product and compensation changes.”