Transforming New Fiduciary Obligations into Differentiators
Three tactics to help ensure “best interests” and better serve customers
Fiduciary demands are rising, placing investor “best interests” – and advisors – in the spotlight. Next generation tools are needed to ensure every investor transaction is done right – with more clarity, more transparency, and more certainty.
When the June 9 DOL Rule extension takes effect, “best interests” will no longer be a buzz word; it will become a mandate. Although not heavily enforced by regulators, the rule could bring about civil lawsuits from unhappy investors.
If you’re an advisor who is motivated by the mandates, and you want to transform “best interests” into a competitive advantage, here are three tactics to consider:
- Get the right data
- Simplify IRA rollovers
- Ensure suitable recommendations
Get the Right Data
To ensure best interests, you need the right data, such as fund rules and fee information. While available, this information is often buried inside the prospectus. Do you know where to look? Are you certain you have the latest version? And do you have the data for all the fund types you offer?
Your workday is busy, and your clients’ time is valuable, so look for a tool that offers all mutual fund, ETF, VA, and 529 plan data. Make sure the data is timely, reliable, and accessible. You want to quickly find the information you need by fund family, fund name, ticker or CUSIP and be able to find specific data points. Lastly, make sure the tool covers all the funds on your sell list. Such a utility will improve all transactions as you will be working from the most up-to-date fee and rules information, helping to eliminate “Not In Good Order (NIGO)” trades.
Simplify IRA Rollovers
Gone are the days when you could simply recommend a rollover. 401(k) plan-to-IRA rollovers now involve numerous risks and requirements to meet best interest requirements. Fee transparency is key. You need a way to access the information, analyze it and present an optimal recommendation.
Because record keepers and plan sponsors keep their plans proprietary, there is no public database of 401(k) plan data. You will need to get this information from your client (i.e., via a fee disclosure document or 401(k) plan statement) and manually input it into whatever tool you use to perform your analysis. However, side-by-side comparisons of 401(k) plans and proposed IRA plans are necessary for creating fee transparency for your client.
And remember, “no” is not always a negative. Research from Cerulli Associates indicates about half of 401(k)/DC plan assets may stay with the retirement plan in a post-June 9 world. If your client is in the “no” camp, they will appreciate the analysis you put in and have confidence that you are working on their behalf.
Also, choosing to rollover into an IRA that is more expensive may not always merit a “no”. Customers may prefer features of the fund, such as the manager or investment strategy. Always capture the customer rationale for the ultimate investment decision – preferably in notes on the advisor recommendation record.
Ensure Suitable Recommendations
While not immediately required under the DOL Fiduciary Rule, eventually all transactions – retirement and retail – may come under a unilateral “best interest” definition. Why wait when you have the data and workflow tools to ensure suitability today? Share class suitability calculators have been on the market for nearly two decades. In light of the heightened attention around fiduciary standards, fund suitability and portfolio comparison tools are either already here or on the horizon.
Find the tool that is right for you – one that simplifies your workflow rather than overcomplicating it. At a minimum, you want the ability to quickly evaluate multiple funds of the same category or to compare expenses across all share classes within a single fund. You also want the flexibility to drive analysis through investor inputs such as investor amount, time horizon, and ideal rate of return.
The end game? To create colorful graphic hypotheticals on the fly – capturing the investor’s signature, adding notes, and keeping a record of the recommendation for future audits.
Make Change Transformative
The advisor world is changing. But that doesn’t have to be a bad thing. Where some see lemons, choose to make lemonade. While others wait, move ahead and turn a challenge into an opportunity. Presenting a clear picture of investment options and cost ramifications will endear customers and bring more assets to your practice. With the right data and advisor workflows, you can transform investor uncertainty into investor clarity, adding more value and differentiating your practice.
Corey Fiedler is Vice President of Product Management for Broadridge’s Regulatory Data and Communications division. Her expertise centers on simplifying regulatory obligations for enterprise firms and advisors. She has authored numerous articles and participated in many industry conference panels on the DOL Rule, fiduciary standards, and advisor workflow technology and automation. Corey also drives the innovation behind FundPOINT®, Broadridge’s suite of data and advisor workflows for IRA rollovers and fund and share class suitability.