Brave New (Fiduciary) World

At the top of almost every financial firm’s agenda is the implementation of the new DOL fiduciary rule, which goes into effect beginning April, 2017. To some, the new rule is the best thing to ever happen, helping to level the playing field among different types of financial advisors, to others, it’s the end of the world as we know it, with the potential to upend core business models and put some firms out of business.

Simply put, the rule requires that “all who provide retirement investment advice to plans, plan fiduciaries and IRAs abide by a “fiduciary” standard – putting their clients’ best interest before their own profits.” Certainly the application of the new rule will have a profound impact on marketing practices in the retirement space effectively outlawing the commission-based business model. But the ultimate impact may be broader still.

While the rule applies only to designated retirement accounts, as opposed to taxable accounts that may be “earmarked” for retirement, greater transparency and availability of investment information and increased client familiarity with fiduciary service platforms is likely over time to result in a “trickle down” effect to non-retirement plan assets.

The breadth of this effect is likely to grow in significance as the population ages and the pace and volume of rollovers from retirement plans accelerates. This will substantially increase the broader danger to the broker-dealer distribution model and to the viability of high commissioned but low value products.