Commentary on WealthManagement.com article by Joshua Pace
While the Department of Labor will not be fully enforcing its fiduciary rule that went into effect June 9 just yet, it’s still encouraging the advice industry to work in good faith to comply with the rule, Joshua Pace writes on WealthManagement.com.
Evaluating Processes, Products and Clients
It’s true that the rule, slated for full implementation January 1, may still be relaxed, according to Pace, CEO of the Trust Company of America. Nonetheless, “the spirit of the rule” is here to stay as investors expect more transparency and lower-priced products, he writes.
The first step is to review disclosure agreements, particularly for advisors who sell commission-based investment products, according to Pace. The fiduciary rule’s Best Interest Contract Exemption requires advisors to sign a contract with the client on commission-based compensation, he writes.
Advisors may also have to sign a BICE to explain a 401(k) rollover into an IRA, according to Pace. Fortunately, the rule grandfathered existing investments by existing clients, so such clients can “agree by negative consent” without a need for a signature, he writes.
But it may be prudent to review existing client relationships and assess, for example, if some commission-based clients should be moved over to fee-based accounts, according to Pace. Furthermore, advisors should evaluate whether it makes sense for them to keep on the smaller accounts or whether they should be transitioned to a model level or onto a digital platform, he writes.
Advisors should also analyze fees paid by their clients instead of relying on fee schedules, according to Pace. This will demonstrate how their fees compare to their peers, he writes. In addition, advice practices should evaluate compensation policies and consider implementing level compensation across the board and banning rewards tied to production, according to Pace.
It’s also important to look at the practice’s selection of retirement products and consider eliminating those whose compensation structure could land advisors in trouble under the new rule, he writes.
Now is the time to also go over record-keeping practices, since the rule requires proving that advisors on retirement accounts are working in their clients’ best interest with proper documentation, according to Pace.
Appropriate investment in technology, meanwhile, can help advice firms document clients’ risk profiles, record the reasoning behind recommendations and help come up with proper investment strategies, he writes.
Finally, advice firms may want to review their marketing and education materials, particularly as many clients and prospects are likely confused by the fiduciary rule, according to Pace. This may also be a good time to demonstrate the value that advisors bring, he writes.
Source: WealthManagement.com
Posted by: The Wealth Advisor
