As the new administration continues to take shape, there is heightened uncertainty about the status of the much-anticipated Department of Labor fiduciary rule. Indeed, several people close to president-elect Donald Trump have suggested that the administration will roll back, delay or outright repeal the rule.
Altering the regulation in a meaningful way before the April 10 implementation deadline will be challenging, so advisors should continue to prepare. More importantly, regardless of the outcome of the rule, the industry is undoubtedly moving toward a fiduciary standard of care and holistic financial advice. Advisors who recognize this shift and structure their practices accordingly will find the most success.
The current DOL rule calls for the elimination of retirement investments that pay different levels of compensation, including commissions, since they can create an undue incentive for advisors to recommend one product over another. Yet before the rule was announced, investors who understood fees were expressing a preference for fee-based products, largely because of the clarity that these fees provide. As a result, even if the rule is repealed, the global shift towards fees should continue. Similarly, the industry is witnessing a move to lower-cost products as investors see more value in financial advice and portfolio construction than individual investments. Advisors need to address this evolving mentality regardless of the DOL rule’s fate. Those who take steps to build fiduciary relationships with their clients will prosper in the future.