Hope is Not a Strategy with the DOL Fiduciary Rule

by Mike Leahy
on December 2, 2016in Fiduciary

The regulatory future in the financial industry became less certain with the election of a new administration. However, preparing your firm to be compliant with the DOL Fiduciary Rule is still the best strategy to manage risk and capture the opportunities and benefits of market leadership.

The DOL Fiduciary Rule goes into effect on April 10, 2017 making best interest conduct, standard operating procedure from that date.

Some financial institutions are hoping that the DOL Fiduciary Rule doesn’t take effect as planned. They are hoping they don’t have to change the way they do business, or the way they compensate advisors, or the conversations their advisors have with clients.

While President-elect Trump has been signalling a strong deregulatory stance to the financial services market, anything can happen after the January 20, 2017 inauguration.

Hope is not an effective business strategy.

The Dilemma

What once was certain is now uncertain – or at least unclear. Will the DOL Fiduciary Rule be repealed? Will it be delayed? Will it be changed, altered, restructured, or gutted? How should firms prepare or should they prepare at all? What happens if firms prepare, spend time, money and resources, and the DOL rule is repealed? What happens if they don’t, and it isn’t?

If hope is not a strategy, then doing nothing is certainly not much of a plan.

No matter what happens to the DOL Fiduciary Rule, financial firms can be sure of the following:

  • If they don’t prepare, they’re taking an enormous compliance risk.
  • Customers are now more aware than ever of their advisor’s fiduciary and suitability responsibilities.
  • Other regulatory rules will emerge and they will require just as much effort to comply.

Today – in the uncertain post-election weeks – almost every financial institution is questioning if the DOL rule still needs to be addressed. The answer is: YES.

The only fact that is clear is that today, and likely tomorrow and the day after that, the DOL Fiduciary Rule is the new standard, and firms must be prepared to abide by it.

Control Risk

We believe that taking a wait-and-see approach to the DOL rule represents unreasonable and unacceptable risk to your business, the business of your advisors and your customers.

You risk non-compliance. You risk that your advisors lose confidence in your ability to help them navigate the DOL rule. You risk that other firms will (and already do) comply, and that they will benefit from the enormous market opportunity created by newly informed customers – customers with different expectations than before.

The Path Forward

By preparing properly for the DOL Fiduciary Rule, financial institutions are sending a strong message to the market – to customers, advisors and other firms – that they are ready to lead. Becoming DOL ready offers a competitive advantage over those firms that decide to “let it ride”, by providing customers with the fee transparency they seek and the advice they require. These are important considerations for customers entrusting your firm with their most treasured assets – their family, finances and future. Transparency and fairness have always been expected by consumers and delivered by the best advisors in the market. The DOL rule has simply elevated those principles to become an institutional requirement for your business.

Whether firms commit to a change now, based on the current regulations in place, or decide to wait, the new reality is that the industry has changed, and that firms embracing this change will reap the benefits.

This is an opportunity for new market leaders to emerge, while the laggard firms fade into the background. The common attribute for market leading firms will be that they looked at the DOL rule not as a challenge, and not as a nuisance, but as an opportunity – an opportunity to gain a competitive advantage by embracing its sprit and by meeting its objectives.

So continue your march toward market leadership. Continue to embrace your DOL preparations and continue to seek the opportunities and benefits that lay on the road ahead.

Supporting you on your DOL journey

We are partnering with industry thought leaders, strategically aligned solution providers and consultants to ensure we are as informed as possible about regulatory and market developments. Together with these partners we are striving to find the best path forward for our clients.

We are working with many firms to help them implement new compensation plans that support thousands of new rep agreements, introduce new products, eliminate retroactive grids, and introduce new incentive compensation plans that eliminate any hint of conflict.

We have launched DOL Readiness programs for firm leadership teams, which is heavily informed by insight into what best practices are being embraced across the industry.

We have launched a compelling Strategic Compensation design service to ensure you can access the horsepower to think long-term in your DOL preparations. We are helping to bring clarity to what Reasonable Compensation is and how is should be approached.

And we are also helping firms stay focused on building and executing for the long term. Our new Xtiva Product Suite includes powerful features to enhance firms’ abilities to drive, support and reward advisor behavior. This next generation Sales Performance Management platform can facilitate incentive compensation programs in a manner not previously possible. Firms will confidently build and operate compensation programs that are strategic enablers of the business and utilize attributes most important to the business, ensure the program remains fully compliant with all regulatory rules and ensures advisors are free from real or perceived biases.

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