Although October has just begun and I have yet to put serious thought into my Halloween costume, it is the appropriate time to think about something truly frightening, I am of course referring to the DOL Fiduciary rules. The spector of BICE, the threat of class action lawsuits is enough to leave the bravest advisor shaking at the knees.
For all the meetings, webinars and articles that I have read concerning the new law, I cannot offer any substantive advice on how to deal with the new rules. It seems nobody truly can. Like any good horror movie, it is not knowing what waits behind the door is what is truly scary. The complexity of the rules combined with the complexity of the financial services industry has everybody waiting for the DOL to put forth a plethora of explanations on how they expect advisors to act in a multitude of situations. That has to happen soon because the rules expect a structure in place by April 2017 and full compliance by the beginning of 2018.
What I have read that has been prescient for what lies ahead was Doug Lennick’s article in the August issue of Journal of Financial Planning appropriately titled Preparing for the Certainty of Uncertainty under the New DOL Rule. Lennick recommends that Advisors prepare by doing the following:
Help clients behave appropriately and reduce their financial stress by preparing them for the certainty of uncertainty. Lennickis a big believer in behavioral finance but even if you can’t name all the biases listed in Thinking Fast and Slow, advisors have to start looking at themselves as behavior changers. We are good at making financial plans can we do a better job of getting clients to follow them?
Know that your value is advice, not products. Getting people to act in their best financial interest is a greater determinant of success than their return. Advice that changes behavior instead of changing investments is where the future of the financial services industry lies. Robo advisors are extremely efficient at changing investments but human advisors are far better at getting a client to change their behavior.
Know that holistic, advice-based financial planning for a client includes more than asset management. This is no big news to those of us in FPA that are trying to elevate the profession of financial planning. The post-DOL rule advisor is going have to focus less on investments and more on every other aspect of the client’s financial picture.
Look for ways to systemize the predictable in order to make more time for holistic financial planning. Leveraging technology (including robo advisors) in order to make more time for face-to-face interactions with client is essential for the post-DOL rule advisor. Technologies that better document and explain the services that advisors are providing clients will be essential for success.
If you haven’t had the guts to face DOL head on, now is the time to start figuring out what it will mean for your practice. I think Doug Lennick’s article did a good job of explaining what it means for financial services – there is no slowing the shift from selling financial products to providing comprehensive financial planning. No doubt this is a pivotal moment for old school investment advisors. Planning-oriented advisors though have just as much to consider. DOL challenges us all to create a better financial planning experience for our clients and to start thinking of ourselves also as influencers of our client’s financial behavior. If we can do that then there will be a happy ending for advisors and their clients.