The DOL Fiduciary Rule Could be a Gift

The DOL Fiduciary Rule means big change. Despite years of consultation, and now fully six months after the announcement of the DOL Rule, we are still figuring out the magnitude of that change. What we absolutely know to be true, is that the ground zero for these changes, will be advisors and their practices.

One area that is going to change a lot is ‘Know Your Customer’ or KYC, and it represents a massive opportunity for advisors who choose to embrace the potential of that change. The old KYC standard isn’t good enough anymore, at least not in a ‘Best Interest’ future. The depth of customer knowledge and awareness that is necessary to provide recommendations in customer ‘Best Interest’ is significant. This has huge implications for financial advisors, their teams and their customers. KYC is core to every advisor practice today, which means EVERY advisor (and their firms), will need to examine how to adjust to reflect this new reality. This means substantial changes in how they approach knowing and understanding customers. And let’s be clear, this is not just what they know, but also how they know it and the processes they embrace to use that knowledge. What is the gap between the typical KYC approach and that which would likely equip an advisor well under the Fiduciary standard? Hard to say. Some advisors are already well down the fiduciary path. But, for others, the gap might represent an effort multiple of 2x, 3x or 5x over current KYC approaches. And it all applies to both their current customers and new ones.

If an advisor has worked with a customer for years, they may still need to increase their understanding of that customer and their circumstances. And, even if they do have remarkably robust customer knowledge, the advisor must to commit to having good documentation and processes in place to ensure that the knowledge is available, usable and kept current. Just because an advisor has been involved with a customer for years, does not mean the advisor has sufficient customer knowledge to act to a fiduciary standard.

And for new customers, the ‘get-to-know-them’ discovery process will need to change for many, many advisors. Advisors will need to go deeper in learning about these new customers – everything about them – from now on. They should do it with a reliable and repeatable process to ensure consistency and to be defensible. And, since the fiduciary obligations may begin at first interaction, so must the process.

The advantage will go to advisors who:

  1. Today have great processes that align with these standards or those advisors on their way to getting there;
  2. Are willing to embrace tools to help them scale their businesses in response to the new standards;
  3. Have a terrific focus on customer knowledge already built into their practice models.

Unfortunately for those with weak process today, or those shy about embracing tools, or those stubbornly sticking to the KYC standard, these advisors are at a distinct disadvantage. Not unrecoverable, but definitely in a tough spot, and worthy of immediate, intense attention.

Some advisors will be big winners because their customers will bring more of their financial assets to the advisor’s care and new customers will embrace the advisor’s services.

What will enable some advisors to win?

Quite simply, they will invest heavily in the new customer knowledge expectations and leverage it for their customers’ success.

  • They will engage with their customers first.
  • They will showcase their profound interest in their client’s success first.
  • They will tell the ‘Best Interest’ story first.
  • They will get to use their process and their tools first.

In doing so, they will help their customers become more confident and deeply vested in the relationship. And doing all of this first is a huge advantage.

Tools, process and speed will win. For the Advisors willing to embrace all three – and quickly – the DOL Rule is probably the greatest gift they will receive in their careers.

Change can bring opportunity. And this time it feels like the beginning of a whole new game.