DOL Fiduciary Rule: Will It Limit or Further Your Business?

Most companies see regulatory change as a threat. The best-prepared companies turn new regulations into business opportunities. If your company provides financial advice related to retirement accounts, you probably know all about the Department of Labor’s (DOL’s) Fiduciary Rule. But is your company ready to comply with the new standards? Not only that: are you ready to also tap into the hundreds of billions of dollars that this regulation will set in motion? 

Every day I talk to executives in insurance, brokerage, and asset management who are concerned about the DOL Fiduciary Rule. Like many of them, you may be anticipating major structural and operational changes across your firm. No wonder, considering that approximately 50% of US retail financial assets are in retirement accounts.

The clock is ticking. Most standards become applicable in April of 2017; firms will have until January of 2018 to comply with the remaining conditions.

After six years in the making, the regulatory package is now attempting to clarify some very complex issues.

Why a New Fiduciary Rule?

The Department addresses conflicts of interest that cause individuals to incur higher costs when saving or investing for retirement. The regulator estimated that, on average, conflicted advice lowered the annual return on retirement savings by one percentage point, resulting in $17 billion in losses every year.

Until now, two distinct types of advisors covered retirement accounts – brokers and Registered Investment Advisors (RIAs). The new rule aims to bridge the gap, create uniformity, and apply fiduciary standards to both categories in an effort to better serve the customers.

How the DOL Fiduciary Rule Will Reshape the Industry

As new research by InvestmentNews & Legg Mason suggests, the new industry standards will reshape business models, demand that companies revamp products and reimagine retirement advice.

The research is based upon a survey of 1,700 advisors. The following are some of the main impact areas they identified:

  • Nearly two out of every three advisors expect their future revenue to decrease.
  • One in three advisors intend to move away from low-balance accounts (with less than $25,000 in assets).
  • More than half of the surveyed advisors anticipate an increase in M&A activity.

DOL Fiduciary Sets Money in Motion

Change is neither good nor bad. What matters is how you react to it. Position yourself wisely, automate the right processes to comply with the rules, and you will be able to use them as competitive differentiators.

A lot of orphaned retirement money will be up for grabs, particularly from the small accounts (less than $25,000) that currently don’t fall under a fiduciary standard, but soon will. According to the study mentioned above, 35% of the polled advisors plan on dropping these small accounts. That could put as much as $334 billion into motion.

What’s certain is this: if you provide advice related to retirement savings, qualified plans, Individual Retirement Accounts (IRAs) or IRA rollovers, the regulation affects you.

 Industry professionals are concerned about the following issues. Do any of them resonate with you?

  1. Making compensation structures reasonable and transparent.
  2. Training advisors to be compliant.
  3. Enabling their producers with approved marketing materials.
  4. Contracting agreements that meet the requirements around best interest and annual disclosure.
  5. Tracking compliance and behaviors in their teams.

How Optymyze Can Help

We have accumulated a lot of experience in helping companies deal with transitions to new market rules.

We consider the following areas integral to your company’s success during the new age of fiduciary standards. This is territory we also happen to know a lot about:

  1.  Analytics

Optymyze can help you analyze historical incentive compensation data to determine the next steps in the process of becoming compliant, from restructuring compensation plans to standardizing fees across product families.

  1. Training

Our integrated platform will enable you to communicate with your agents and provide them with necessary training. You will be able to:

  • Define rules that help RIAs/brokers distinguish between “advice” and “education.”
  • Track training completion and gather sign-offs.
  • Enable employees with approved and compliant marketing materials.
  • Track and report on agents who are using the approved material.
  • Create a series of pertinent recommendations prompting RIAs/brokers to give impartial advice, disclose potential conflicts of interest, reveal all compensation information, and act in the best interest of the customer.
  1. Audit/Compliance

Optymyze will enable you to test the agents’ knowledge and make sure everyone is compliant:

  • Assess the level of exposure in retirement assets by creating a unified view of the entire portfolio.
  • Create a single source of truth for RIA compliance in order to identify potential policy churn before the transaction goes through.
  • Stay on top of licenses, appointments and continuing education.
  • Design survey questions (such as the following) to collect customer feedback:
  • Did the RIA act in your best interest?
  • Did the RIA provide you with enough options?
  • Did the RIA disclose all commission and fee information?
  • Report survey results to gain a comprehensive understanding of RIA

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Jeffrey Onorato

Sales Director, Banking & Financial Services

With a career spanning 25 years, Jeff has a track record of business success: while working as a sales executive in large companies, and as a founder of two small businesses. At Optymyze, he focuses on Banking & Financial Services – an industry he is passionate about and knows very well.

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