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3 Steps to Prepare for DOL Fiduciary Rule

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Advisors are preparing for the Department of Labor’s fiduciary rule in the same way America has been preparing for Donald Trump’s run for president, says Raef Lee of SEI Advisor Network.

“I’ll make a terrible analogy,” Lee said during a visit to ThinkAdvisor’s New York office. “Trump is now the leader of the party just about. Nobody did anything about that for the last year. The writing was on the wall. It’s the same thing with the DOL.”

The SEI Advisor Network has about $50 billion in assets from about 7,000 firms, so Lee, the managing director and head of new services and strategic partnerships, and his colleague John Anderson, head of practice management solutions, get a lot of insight into what issues are top-of-mind for advisors.

“What I’m hearing right now is fear,” Anderson said. “It’s fear of the unknown. It’s, ‘What is this [fiduciary] rule going to do to my business?’”

But, rather than preparing for the rule, Anderson finds the bulk of the industry is sitting back and waiting for the rule to go into effect first.

“It’s across the board,” he told ThinkAdvisor. “I have a friend who works in the wirehouse system and he said ‘Whether you’re wirehouse, whether you’re independent, whether you’re sitting at a bank or you’re in your basement – everybody doesn’t know what to do.’ They’re just waiting for it to happen and that’s the wrong way to do it.”

Anderson is not seeing a lot of action steps or action plans being taken by advisors. And, most of the advice he is seeing surrounding the fiduciary rule is “here’s what the law is, but it doesn’t tell them what do to about it.”

“Most people are sitting back and saying ‘I’m going to wait’ because they don’t know what to do,” Anderson said. Adding, “I think we’re doing ourselves a disservice because we’re waiting for something that we know is going to happen and yet we’re not creating an action plan around it.”

Rather than wait, Lee and Anderson have put together three pieces of advice for advisors to start preparing for the DOL fiduciary rule now:

 Talk to your clients

1. Start the conversation with clients now.

As Lee points out, the general public has no idea that this is coming or what it means.

“You can imagine what’s going to happen when it starts leaking out in a way that people understand,” Lee told ThinkAdvisor. “They’re just going to be scared, and they’re not going to know who to turn to.”

This is why both Lee and Anderson believe advisors should be talking to their clients now about the DOL fiduciary rule.

“I get to set the conversation well in advance and say ‘You’re going to hear something that’s called the DOL fiduciary rule. Let me tell you a little bit what that looks like. Let me tell you how that’s going to change the relationship that we have. Not better, not worse – just it’s going to change it,’” Anderson said.

Anderson also believes this is a prime time for advisors to evaluate their value propositions and communicate that to their clients.

“If you’re talking about what the changes are, you have to back it up with ‘here’s the value I’m going to add to our relationship,’” Anderson said. Adding that advisors can tell their clients, “Here are the additional things I can do for you now that we’re fiduciary. And really turn that into a positive spin, rather than ‘Oh My God. What does this mean to me?’ And panic.”

 Start segmenting clients

2. Start segmenting clients.

Anderson is suggesting advisors examine their book of clients now.

Of those accounts, he says to look at how many of those accounts have commissionable products in them, and “start to segment.”

Anderson says advisors should separate their clients into three areas.

In the first group, he says to put “the client that I want to move immediately from commission to fee.” And then decide what those conversations are going to look like, Anderson added.

In the next group, Anderson says to determine the “set-aside clients.”

“Meaning, maybe I’ve got a variable annuity with surrender charges that I don’t want to move,” he added.

In the third group, advisors should put the accounts “that I don’t want to say ‘fire’ … but is there a better service for them or a different model?”

“Maybe you send them direct to custodian and meet with them once a year and charge an hourly rate,” he added. “Maybe you send them to a ‘techno-advisor’ like Vanguard or Schwab that allows them to at least have their assets custodied somewhere and you can still keep in contact without providing advice.”

Anderson thinks advisors need to be putting a plan like this together today “versus 45 to 60 days from now when you’re going to be forced to.”

Start a technology workflow 

3. Start a technology workflow.

Advisors should start assessing their technology now to fit into a fiduciary practice.

“I’m starting to see some [people in the industry] looking to see what needs to happen in the technology to make it compliant in the new world, and it’s a nightmare,” Lee told ThinkAdvisor.

Technology, if done right, could help advisors be more compliant because it could clearly show advisors’ processes transparently.

“The processes are now starting to change, so that you must be able to show the path by which you guided your client,” Lee said. Adding, “So many people start with a pad and paper and say ‘Let me show you what’s going on.’ Well that is not compliant. Nowadays you do have tools that enable you to monitor.”

If the advisor adopts an integrated CRM and technology workflow system within their office, the fiduciary change could be a lot easier than somebody that has it all in their head.

“You’ve got a consistent way of interacting with the client, and then you monitor for specific data or specific things along that to gather the data,” Lee said.

The problem is that a lot of advisors don’t have a technology workflow in place.

“A lot of people are trying to work out: What a process would be and how do you compliantly monitor that process?” Lee said. “And pretty well everyone is waiting to see the DOL defined before they actually throw their money under it.”

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