The retirement advice industry is positioned for change in 2017, but how advice experts prepare for that change could make a significant difference in their business.
The Department of Labor’s fiduciary rule, announced earlier this year, will amend the definition of advice and hold all financial professionals giving retirement advice to a fiduciary standard of acting within the best interest of the client. The rule will impose additional compliance and documentation requirements, particularly in the individual retirement account (IRA) business.
While the broader definition of fiduciary will take effect in April 2017, remaining elements of the rule will be phased in and take full effect in January 2018.
There are several actions you can consider now to prepare your business for the new requirements.
Examine your book of business. Consider the service needs of your client base and determine what percentage of the IRA segment may be affected by the rule. Determine whether IRA assets are held in different types of investments, such as annuities, and if the fee structure varies among accounts.
Review your fees and pricing. Brokerage professionals should stay in touch with their home office for guidance. Independent advisors will want to review their fee structure and determine how they will determine that fees are “reasonable,” and how to benchmark fees when complying with the new rule.
Create or update a compelling value proposition. New regulations will likely require more oversight and documentation to justify costs for services provided. Are other non-investment-related services being documented? These include financial planning, Social Security optimization, health-care needs, college planning, lending and financial services, and more. Prepare a detailed document of services and value.
Communicate and document your investment process. Advisors will likely be required to have an investment policy statement and a process for evaluating and documenting risk management.
Have a plan ready for IRA rollovers. The fiduciary rule requires firms and advisors to justify that a rollover out of an employer-sponsored retirement plan into an IRA is in the best interest of the client. Advisors need to be prepared to discuss and document the reasons for, and value of, the rollover. For more information on this topic, read our investor education article, “When it’s time to move 401(k) assets.”
Be prepared to communicate changes to clients. Many clients will probably ask about the fiduciary rule and its impact. Prepare now for ways to educate clients about the rule and any potential changes in your business.
The more you do now to prepare for the new rule, the easier it will be for existing clients to transition, and the better-prepared your business will be to communicate with prospects. For more information, the DOL has published the final rule and its amendments on its website. We anticipate the DOL will issue guidance on various topic areas as the implementation approaches.
For informational purposes only. Not an investment recommendation.
This information is not meant as tax or legal advice. Please consult with the appropriate tax or legal professional regarding your particular circumstances before making any investment decisions. Putnam does not provide tax or legal advice.