3 steps to prepare for DOL fiduciary rule

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 our sister site, ThinkAdvisor, at their 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:

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.”

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.