Most coverage of the Department of Labor’s (DOL) fiduciary rule has focused on the challenges it will introduce for firms, such as increased costs, compliance and margin pressure. However, as we all know, within any challenge there lies opportunity.
With today’s new challenge, industry leaders will take the opportunity to go beyond the basics of the DOL rule and will embrace the spirit of the rule to become truly client-centric. Beyond just avoiding conflicts, the spirit of the new rule encourages advisors to put their clients‘ best interests ahead of all other factors when providing investment advice on retirement accounts.
Practically speaking, many expect the rule to accelerate the industry’s ongoing transition from commission to fee-based advice in these situations. I believe the spirit of the new rule will also accelerate a bigger long-term trend in our industry — the move from a product-centric to a client-centric way of doing business. Those who embrace this spirit of the DOL rule can use it as a catalyst to transform their firms and differentiate themselves from their peers.
By being truly client-centric, I mean incorporating the following elements into providing advice to each and every investor, large and small:
Crafting portfolios specific to each client, truly reflecting their unique profile.
Some advisors can only afford to personalize a portfolio for their largest clients, while everyone else gets somewhat mass-produced solutions. However, with the right planning and operational and technical infrastructure in place, creating customized portfolios for each client can be done at scale.
Helping clients achieve their life goals, instead of simply chasing performance.
The traditional approach to designing and measuring portfolios against a benchmark is changing.With many industry leaders embracing goals-based wealth management, portfolios are increasingly being designed and measured around each investors’ unique goals for their wealth.
Managing an entire household’s wealth as an interconnected whole.
Many advisors are used to managing a client’s wealth account by account. Even if an advisor wants to take a holistic approach to providing advice across a household’s entire wealth, often the best they can do is household level reporting. But ideally they should go beyond just reporting and manage all of their clients’ accounts as a whole, guided by a single overall investment strategy.