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.
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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.
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.
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.
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?