The reality is that not everyone will be a fiduciary, but it’s sure going to appear that way. Whether you are an advisor that currently accepts fiduciary responsibility or you have been/are prohibited from doing so, at a plan sponsor level or participant level, the proverbial playing field was essentially leveled by the recent release of the Department of Labor’s (DOL) Conflict of Interest Rule.

I had the privilege of sitting alongside fi360 CEO Blaine Aikin and notable ERISA expert Fred Reish for a panel discussion on the fiduciary rule late last week at the fi360 national conference and wanted to share some thoughts with you.

Were There Any Significant Changes From Proposed Rule To The Final Rule?

According to Fred Reish, under the final rule, significantly more advisors are likely going to use the Best Interest Contract Exemption (“BICE”) than previously thought. Under the proposed rule, the BICE would have forced greater transparency both in regards to fees and results, which could have increased liability and subsequent litigation. It would have also been incredibly cumbersome to comply with causing many advisors to avoid utilizing the exemptive relief.

However, in the final version of the rule the BICE was very much softened at the edges. The transparency requirements and administrative burden were diluted or eliminated entirely.  For that reason, the BICE will likely become a more appealing option.  It will also make it considerably more confusing to distinguish advisors accepting fiduciary responsibility from those utilizing the exclusions in the BICE. The net effect is an advisor can claim to be a fiduciary and yet keep many of their conflicts.

What’s Going to Win and Keep Business under the New Fiduciary Rule?

According to Blaine Aikin, the top three recommendations for highlighting your value under the new fiduciary rule are going to be: Results, Process and Implementation. Let me expand on that a bit further:

  1. Results– The focus is going to shift to outcomes and goal readiness. This can’t merely be theoretical. Advisors are not only going to have to improve outcomes for their participants, but quantify and document those actions to show that they are adding significant value. This will also greatly assist advisors in justifying fees in what will likely be an increased state of fee compression. During the panel Fred Reish also noted that to this point most litigation has been about numbers, expense ratio, revenue sharing, etc.), but that we will likely begin to see a shift towards litigation involving quality and value.
  2. Process– Developing and documenting fiduciary best practices standards within your firm is essential to both credibility and liability. One area that I highlighted during the session was the importance of trust. There is very little trust in this country today; in fact a recent study showed that only 18% of Americans think the government does the right thing. Trust can’t be legislated, it has to be earned. You can earn trust by showing that you have prudent processes in place to avoid conflicts of interest and always put the participant’s needs ahead of your own. CEFEX certification for those serving as fiduciaries will be of higher importance in the future.
  3. Implementation– Blaine further discussed the importance of focusing on the client experience through specific deliverables and progress reports. Again, merely saying that you are delivering a prudent process that is outcomes driven most likely won’t be enough. You will need to be in a position to communicate regularly and report on the deliverables that drive your value and differentiate yourselves amongst your competitors.

Fred noted that when he drafts advisory agreements, he sees that most advisors have a similar set of services at the plan level, and where they differ is typically at the participant level. Because the participant can be very time-consuming and an unprofitable business model, this makes the implementation of a personalized managed account solution (ex. UnifiedPlan) all the more important–since the system is scalable.

These three steps, while incredibly important, are likely going to be cumbersome for the advisors that want to stand out in the newly crowded fiduciary landscape. Many are not going to be able to do it alone.  It’s going to be important to leverage fiduciary partners like Unified Trust, who have the back engine in place to help you deliver improved outcomes in a scalable and deliverable business model.

 

About Greg Kasten view all posts

Dr. Gregory W. Kasten serves as Founder and CEO of Unified Trust Company. He has published more than 100 papers on financial planning and investment-related topics in various financial and business journals; written two editions of the book Retirement Success. In 2007-2009, Medical Economics listed Dr. Kasten as one of "The 150 Best Financial Advisers for Doctors" in the country. Dr. Kasten was inducted into the Advisor Hall of Fame by Research Magazine in 2011 and in 2013 was named Retirement Plan Adviser of the Year by Employee Benefit Adviser Magazine. He has more than thirty years of investment experience.