The Department of Labor (DOL) has finally redefined who will be held to the “fiduciary standard” concerning retirement investing advice and how it’s applied. Yesterday’s long-awaited ruling—which requires registered investment advisors, brokers, and insurance agents (collectively “advisors”) to act in the best interest of their clients—has huge implications that will affect the advisor-client relationship for years to come. Here are three of them:
1. Advisors must learn all there is to know about their clients in order to better serve them
With the new ruling, it will become increasingly critical for advisors to discover all there is to know about their clients and put their clients’ need and wants front and center. Doing so will allow them to give better investment advice while upholding their fiduciary duty. This includes using “next-generation tools” such as social networks and digital aids to cultivate relationships and facilitate ongoing communication through the sharing of tailored content and thought leadership.
Additionally, advisors must provide differentiated value at low cost to better serve their clients in light of greater transparency into how they are being paid in fees and product commission. The greater value advisors provide, the better prepared they’ll be to recommend investments that are in their clients’ best interest.
2. Advisors must embrace technology in order to deepen relationships and increase productivity
Technology will play a big role in how advisors reach and engage with clients as well as boosting their day-to-day productivity. Hearsay Social CEO and founder Clara Shih has spoken about this many times before, including at a 2015 BlackRock leadership event focused on the future of wealth management. She discussed the need for advisors to deliver more value to clients amidst greater productivity pressures by stating:
“Advisors can only do this by embracing technologies that free their time to focus on the human, emotional aspects of helping coach clients through tough life decisions. Two of the most time-consuming aspects are asset allocation and business development. Overall, the consensus from the C-suite is that there are big opportunities for advisors to leverage automation and productivity tools to help them recapture some of that time.”
3. Firms must leverage technology that enable advisors to better attract, engage, and keep high-net-worth clients
To compete under the new rules, advisors will need to cast a wider net in order to attract and keep high-net-worth individuals (HNWIs). Millennials, in particular, which represent a growing group of HNWIs under the age of 40, offer significant opportunities for advisors. According to the 2015 World Wealth Report, these younger investors prefer to use mobile phones, tablets, and other mobile devices for nearly all their information, transactions, and interactions. By leveraging technology, firms can enable their advisors to attract and keep this sought-after segment.
There is no question that the new DOL rule will have a big impact on advisors who are currently managing 401(k) plans and advising on individual retirement accounts. As we dig deeper into the new ruling, we will continue to keep our customers abreast of how these changes will unfold.
One thing is certain: It’s more important than ever for advisors to leverage technology to learn all they can about their clients and share thoughtful recommendations across their clients’ and prospective clients’ preferred communication channels–both online and offline.
Above all else, the DOL ruling serves as a loud wake-up call for advisory firms to adjust their business models to meet the new fiduciary standard, and the extended grace period will allow firms ample time to do so.
Be sure to follow @HearsaySocial for ongoing dialogue and insights around the DOL ruling.
For more information, check out the following news resources:
- Labor Department Rule Sets New Standards for Retirement Advice (Washington Post)
- What it Means for Investors: Rules for Financial Advisers Are Changing (USA Today)
- Who Wins, Who Loses With New DOL Rule? $3 Trillion in Play (ThinkAdvisor)
- Darwin and the DOL (FA Magazine)
- DOL Storm Watch (FA Magazine)