The Department of Labor fiduciary rule has been viewed as a setback by some industry observers who warn of more paperwork, procedural changes and potential client confusion. But for RIAs, the new rule may be a step ahead more than a stumbling block. “I think we need to educate our clients on what fiduciary responsibility means, and I think this law is a good thing,” said Christine Moriarty, president of MoneyPeace. “It’s adding professionalism to our business. It is adding more work, but that’s what we need to be compensated for.”
“It impacts the cost of doing business, but by itself should not be an inhibitor to growth,” observed Mark Tibergien, CEO and managing director of Pershing Advisor Solutions. “I think the biggest implication is that critical mass for an independent advisory business has just become larger, so advisors will need to seek mergers, acquisitions or recruitment opportunities in order to have more revenue to spread among a higher level of costs.”
Tibergien noted that regulatory change is just one factor with the potential to disrupt advisors’ businesses. “Two other big ones to be thinking about are changing economics and changing demographics,” he said. “What we’re seeing now is that the cost of doing business is increasing, and so advisors have to be much smarter about how they manage to profitability. If you apply the 80-20 rule, that means 80% of their clients are not in the sweet spot. So they need to shift their business to a higher percentage of optimal clients.
“On the demographics,” he added, “there is a mistaken belief that when the last boomer dies, the world will come to an end. What’s true is that there are new generations of both clients and advisors that will affect the way we do business. Right now, when we look at Gen X, that’s the generation accumulating assets faster than either boomers or millennials. So advisory firms have to reorient around the next generation of accumulators.”
Tibergien concluded, “You really have two types of advisors: those who live in the past and complain about the present, and those who see the present as a catalyst for the future. Setbacks in business are inevitable. The question is whether you are structured in a way that allows you to manage the risk.”
— Read more from other experts on dealing with setbacks in Six Advisor Experts On Client Setbacks on ThinkAdvisor.