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DOL rule: Ex-NAIFA chief readies practice for the new regime

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Much of the current discussion about the Department of Labor’s conflict of interest rule is focused on the pending burdens: how much the new regulations will cost in education and training, needed changes to business processes, and other new compliance requirements.

These are coming down the pike, but so too are opportunities to grow one’s practice under a DOL regime. Transitioning to fee-based compensation could, for example, put your practice on more solid footing, as business revenue would be less dependent on new sales. Also to weigh: the prospect of growing your practice — potentially significantly — by acquiring books of business from retiring advisors unwilling to operate under the fiduciary rule.

Related: Survey: Most advisors expect rise in DOL compliance costs

One insurance and financial services professional who’s attuned both to the rule’s market opportunities and challenges is Juli McNeely, the 2014-2015 (and first woman) president of the National Association of Insurance and Financial Advisors. LifeHealthPro recently interviewed McNeely to learn how she’s preparing for the rule’s phase-in between April 10, 2017 and January 1, 2018. The following are excerpts.

LifeHealthPro: How do you plan to adjust your practice in response to the DOL’s fiduciary rule?

McNeely (pictured): Our broker-dealer has started to provide some direction for navigating the rule, but there’s still much speculation about changes we’ll need to make. That said, we are planning to move our larger accounts to a fee-basis. We expect to have a DOL-compliant plan in place by January 1, 2017.

LHP: What are the outstanding questions you have about the DOL rule?

McNeely: The big one concerns what to do with small accounts: people who are investing, say, $50 or $100 per month in a Roth IRA or SIMPLE IRA. We’re now in a wait-and-see mode on this.

Some of our mutual fund partners have indicated they plan to unveil a low fee-based share class, similar to F shares — potentially requiring as little as $1,000 invested. My hope is that we can convert many of our A share clients to such new fee-based accounts, and without a lot of additional paperwork.

LHP: What’s the minimum amount for establishing a fee-based account with your broker-dealer?

McNeely: The threshold is now $25,000, though that could change. There’s no minimum on the commission side.

Related: Software pundit: Plan for a total IT overhaul after DOL rule

NAIFA’s McNeely says her firm already has much of the technology — including a mobile dictation service, CRM software and an electronic filing cabinet — needed to comply with the DOL rule. (Photo: Thinkstock)

LHP: Would continuing to serve your small retirement accounts on a commission basis be problematic because of the legal liability engendered by the DOL rule?

McNeely: Yes, but also because of the potential increase in paperwork connected with the rule’s best interest contract and BIC exemption. At this point, we’re not sure what the contract will look like; it may or not be cumbersome to work with.

Also unclear is the ultimate impact of the rule’s grandfathering provisions. My understanding is that we’ll be able to continue to receive trailing commissions for advice provided prior to the rule’s effective date in April 2017. But new recommendations for an existing client will require a BIC agreement once the new regulations take effect.

Related: The DOL: In your face once more with an overtime pay rule

LHP: Do you anticipate any blowback from clients with small accounts as a result of the new regulations?

McNeely: I don’t. In most cases, when I explain to clients the situation we’re facing, most of them say, “I don’t care how we do it; I just want to keep working with you” — even it means signing a big stack of paper that most of them won’t read. What’s more important is the trust clients place in me; no amount of additional paperwork can replace this.

LHP: One software executive I recently interviewed suggested that much of the software now used by advisors and their distribution partners will need to be upgraded to be DOL-compliant. Do you anticipate this, too?

McNeely: I think we have much of the necessary technology in place already. We use, for example, a mobile dictation service to document client conversations. We also have a robust CRM [customer relationship management] system for tracking activities and capturing financial information about clients and prospects, as well as an electronic filing cabinet for storing documents.

That said, we’re not sure what in addition our broker-dealer may require. One possibility is the implementation of monitoring software to document client discussions and retirement account recommendations. I hope to know more by next January, when I’m scheduled to attend my broker-dealer’s advisory conference. I expect the first quarter of next year will be incredibly intense as we prepare to meet the DOL’s April 2017 deadline.

Related: IMOs can anticipate hurdles ahead under the DOL rule

McNeely believes that she and other advisors in her practice will still be able to earn both commissions and fees under the DOL rule. (Photo: Thinkstock)

LHP: How else might your relationship with your broker-dealer change. Do you anticipate going fee-only?

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McNeely: No. I plan to remain dually registered with our broker-dealer and our RIA, as I believe we’ll still have the ability to earn both commissions and fees. Again, my hope is that we’ll be able to figure out a way to serve the many small, commission-based accounts in our community; I don’t want have to hand them off to a robo advisor ill-suited to their retirement needs.

Related: IMO makes targeted claim against DOL rulemaking procedures

LHP: How many clients do you have now?

McNeely: I’ve whittled them down a bit due to my NAIFA responsibilities. I and three other advisors in our office serve about 1,500 families. Of the total, I’m guessing that about half would qualify for a fee-based account under the DOL rule. My average account size is about $71,000.

LHP: If you do have to give up smaller clients, do you expect that you’ll have to make up the difference by prospecting for larger retirement accounts that would meet your asset threshold under a fee regime?

McNeely: We’re always looking for new clients, primarily by way of referrals from existing clients. What we are doing differently is charging fees for things — developing a financial plan or availing small business owners of experts to speak on a business topic at a luncheon event — that we used to offer as a complementary service. Going forward, we’ll have to charge fees for services that take a lot of time.

LHP: Do you also expect to be offering more products that reside on a fee-based chassis?

McNeely: Yes. Jackson National, one of our carrier partners, now offers a fee-based variable annuity. I think we’ll see more fee-based products from other VA and mutual fund providers.

LHP: While preparing for the DOL’s rule, you may also have to contend with a fiduciary standard from the Securities and Exchange Commission. Is this a concern?

McNeely: That’s definitely worrisome to me. Should an SEC fiduciary standard — if and when it’s released — be vastly different from the DOL’s, I don’t know how we’ll operate. The two standards will have to be similar to be workable; I can’t see any way around this. The SEC could really muddy the waters on this issue.

Related: In distribution play, Nationwide to acquire Jefferson National

NAIFA recently unveiled a four-hour Skill Builders workshop, which is a resource to help agents and advisors understand the DOL rule’s requirements and restrictions. (Photo: Thinkstock)

LHP: In the wake of the DOL rule, do you anticipate having to upgrade your skills and expertise or pursue new educational designations?

McNeely: Any instruction that will help us better understand how to operate as a fiduciary will be very important. NAIFA just came out with a four-hour Skill Builders workshop —a great resource for helping advisors understand the rule’s requirements and restrictions — that I intend to register for.

That said, I already have the education and training to serve as a financial planner; I just need more clarification on how to operate in the new fiduciary- and fee-based world. The additional training needed will likely come from our various business partners, including my broker-dealer.

LHP: What market opportunities do you see arising under the DOL rule? How might you be able to grow your practice?

McNeely: A significant number of advisors may retire to avoid transitioning to a DOL regime. If that happens, there may be opportunities to pick up their books of business through mergers or acquisitions. But this is all speculation; we’ll have to see how the industry responds as the rule is phased in.


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