In a wide-ranging webinar, two senior vice presidents at Envestnet laid out several steps advisors can take to comply with the new Department of Labor fiduciary rule. The presenters, Lincoln Ross and Jim Patrick, noted that the recommendations are part of an ongoing process that will evolve over time as the DOL itself releases more FAQs and other communications about the rule, which runs over 1,000 pages.
Here are some of the highlights of the Envestnet webinar along with our followup afterward:
Implementation of the DOL rule will be gradual. Between now and April 10, 2017, it’s business as usual, followed by a transition period that ends Jan. 1, 2018.
During the transition period, advisors can use an interim BICE (best interest contract exemption) when investing client funds in a commission product like a variable annuity. That would require a written statement of the fiduciary status of the advisor and identification of a compliance officer overseeing BIC exemptions.
It could be followed by what Envestnet calls a “level fee fiduciary BIC,” whereby the account becomes fee-based, if it’s not already. There would be no variable compensation that results in a conflict. Once that’s signed, no other BICE would be required in the future.
For other advisors not operating as a level fee fiduciary, a full-blown BIC would be required as of Jan. 1, 2018, for the sale of any product that involves variable compensation for the advisor. It would commit the advisor to being a fiduciary, disclose general compensation and, if requested, compensation for sales of specific products.
There are still questions about which products requires BIC and when, but the DOL could clarify that through additional FAQs or other communications, says Ross.
In the meantime, Envestnet will be supporting advisors and institutions through this transition period and holding more webinars, says Ross, Envestnet’s head of product strategy and marketing.
“There’s a lot to capture here,” said Patrick, head of advisor services.
The Envestnet Webinar included several action items for advisors, their firms and asset managers to take in order to comply with the DOL rule. Key among those items for advisors: segmenting client accounts by asset size, IRA vs. non-IRA, commission-based versus fee-based, rollover sources and volume and trends.
In addition, advisors should inventory their revenue streams to and from partners as well as the advisory solutions available to them and evaluate switching from a commission-based to fee-based practice if they haven’t done so already. Digital solutions for smaller accounts should also be considered, according to Envestnet.
Becoming an essential advisor
Finally, advisors now more than ever need to articulate their value to clients and become essential to those clients, according to Envestnet, which serves more than 47,000 advisors.
The webinar listed 10 action points, all of which are included in the book “The Essential Advisor: Building Value in the Investor-Advisor Relationship” by Envestnet President Bill Crager and Managing Director Jay Hummel.
Included in that list: Identify investor needs and put those goals first, which is what the DOL fiduciary rule is about; develop and monitor a personal plan for each client, help clients through major life changes and be transparent about fees and expenses.
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