Even with discussion and, frankly, confusion around the Department of Labor (DOL) fiduciary rule building to a fever pitch so far in 2017, advisers are not backing away from plans set in recent years to improve compliance controls and transparency.
Toward the end of last year and into early 2017, Fidelity conducted a separate poll of advisers to see how a potential postponement of the DOL rule, promised but so-far undelivered by President Donald Trump and many Republican members of Congress, would impact their plans to change business models and fee structures. According to the poll, 44% did not intend to slow down their compliance improvement plans even if the fiduciary rule were delayed or halted outright, while another 19% “were proceeding only slightly slower with their plans.”
“Advisers continued to focus on implementation and have firmly shifted their focus from the ‘what’ to the ‘how,’” explains Scott Couto, president, Fidelity Institutional Asset Management. “While they have invested time, energy and resources to understanding the rule and its implications, they have now directed their attention to what it means for their practices, including how to implement the necessary changes, regardless of any potential regulatory developments.”
According to Fidelity researchers, many advisers remain focused on strategic and tactical changes related to how they run their practices and work with their clients, “including identifying potential new clients as they move toward more fee-based business, as well as balancing face-time with clients and the time needed to complete compliance requirements.”
Fidelity encourages advisers to continue these efforts for the good of the end investor—and urges advisers for their own sake to install a highly disciplined process for crafting and maintaining business models in this complicated environment.
“A deliberate, defensible and documented process on how investment options are evaluated may increase client confidence in recommendations,” Fidelity explains. “It is important that advisers look across the different product features and benefits and a structured process for documenting client interactions, including any recommendations or guidance the adviser provides, can help frame discussions around fees and services.”
Optimizing productivity is also crucial, Fidelity’s results show: “By being efficient at investment management, advisers can turn their attention toward areas where they can deliver more value,” researchers note. “For example, they can gain scale and efficiency in managing investments by considering model portfolios and reviewing their manager selection process. This will free up time to provide goals-based planning.”
NEXT: Fiduciary uncertainty spells opportunity
“While there may be further developments which may impact the DOL fiduciary rule, the reality is that the rule is only accelerating, not causing, some of the fundamental trends that had already been taking hold across the retirement industry,” argues Couto. He cites the “shift toward greater transparency, fee-based compensation, lower-cost products and digital advice solutions,” in particular.
“These will likely remain with or without the DOL rule being applicable, in part due to changing consumer preferences and new technologies,” Couto continues. “Regardless of the fate of the DOL rule, advisers may find that proactively taking action now will better prepare them for the future.”
In related commentary shared with PLANADVISER, Erin Sweeney, member at Miller & Chevalier and formerly with the DOL as a senior benefits law specialist, agrees. Like other ERISA specialist attorneys, Sweeney feels it is far from clear what will happen with respect to the DOL fiduciary rule. Even counting the events of the last week, during which a 180-day delay in the fiduciary rule implementation was floated in a draft presidential memorandum but quickly abandoned, some sort of delay or outright rescinding of the rule still seems most likely—but it hasn’t happened yet, and April 10 is closing in fast.
“The Trump Administration has directed the DOL to analyze the rule and related prohibited transaction exemptions, especially the best interest contract exemption, to determine if the exemptions substantially undermine the rule’s effectiveness at achieving its intended goals,” Sweeney explains. “The Trump Administration also directs the DOL to consult with the U.S. Attorney General to determine whether the fiduciary rule violates the Administrative Procedure Act or any other applicable statute.”
After the DOL considers the items outlined by the Trump administration, it is also directed to “determine if the fiduciary rule is inconsistent with the policy of this administration.”
As Sweeney observes, in that event, or if warranted based on conclusions regarding the items the DOL is required to consider in its updated economic and legal analysis, the regulator is directed to propose a new rule rescinding the previous rule, revising it, or proposing revisions to the related prohibited transaction exemptions. The proposed new rule would then in turn be subject to notice and comment, making for quite a complex process that has to play out prior to April 10.