How To Respond To The DOL Fiduciary Rule

by: John Lohr


Broker and advisor reactions to the DOL fiduciary rule are chaotic and confused at the same time.

Most writers (especially lawyers) are making much more out of the compliance aspect than it will really take.

Here are some simple things you can do to comply. More coming another week.

The financial advisory business is awash with knee-jerk reactions, fear and loathing, discontent and uncertainty because of the DOL Fiduciary rule. It was to be expected. The DOL in typical regulator fashion issued a long, long text that repeats itself several times, and provided no interpretation or guidance. Historically, the DOL has refused to tell ERISA plans and advisors how to comply.

They always said something like, "You make your own judgment and after the fact if we think you're wrong, then we'll get you." They did say this time that "sometime soon" they'd come up with some guidance. I can hardly wait. This is what happens when you have junior lawyers writing something that impacts a business.

In the meantime you can hear or read:

67% of insurance financial advisors expect to lose some or all of their low- to middle-income clients.

Another 17% of these same advisors have no idea how they would be affected.

29% of advisors think it would be an "opportunity." Do you think they were already fee-based fiduciary advisors?

10% of advisors are considering leaving the business.

18% of advisors were "reconsidering their careers."

The fund business will change dramatically in fees and share classes.

The annuity business will die.

The brokerage industry will lose $11 Billion in revenues in the next 4 years, even without the help of the banks.

Independent IBDs will lose $350 billion in assets.

ETFs will soar.

Smaller accounts will gravitate to... robo-advisors?

The DOL said they "want to hear from advisors about any struggles they're experiencing trying to understand the rule and how to comply." No way they have enough call center employees to field that volume of calls.

There is an increase in advisors and smaller brokerage firms outsourcing their 401(k) business.

So, what does an advisor or brokerage firm do:

1. Drop out of the business? Some will.

2. Start a robo-advisor? Bad idea.

3. Quit selling insurance? Some will.

4. Look real hard at ETFs, so you don't get left behind? Band-aid.

5. Nothing? Loser.

6. Pay off your debt in anticipation of a pay cut? Maybe.

7. Move all the business to fee-based and assume a fiduciary role? May be best solution.

8. Something else? Probably.

One firm has a great idea, from a business perspective: State Farm.

Starting in April 2017, they will only sell and service mutual funds, variable products and tax-qualified bank deposit products through a self-directed customer call center. No, it doesn't help advisors, but it's a good business decision. Still their financial advisors can concentrate on insurance and fee-based fiduciary products, if they allow it.

Quandary? Yes. Easy to solve? Yes. Complying with the rule is not that complicated despite what those lawyers go on about.

Broker or advisor: Make prudent decisions that are justifiable as being in the client's best interest.


Disclose all the fees - yes, including yours.

No "double dipping" - you can't collect a 12b-1 fee and an advisory fee on the same account.

Have a documented process to discuss with your client an IRA rollover from a 401(k).

Forget about A-share mutual funds.

Broker: The BIC exemption is not rocket science, and if you have an ethical approach to your business, you can comply with it.

Specifically, you can still sell commissioned products to plans and participants. Sure, you might have to have a few more disclosures such as telling clients how much you actually make on the transaction. You still have the "best interest consideration" that better be documented. Like I said last month, if you don't want to disclose your fees, maybe you should consider a sales job at Shoes R Us in Paintball, Arkansas.

You'll need a new contract. We have a template.

You will need website disclosures.

You can still sell REITS, hedge funds or annuities to a retirement plan. It requires a process and meeting the best interest test.

"Fiduciary" is nothing to run from. All those independent IAs that have been selling that "they are a fiduciary and brokers are not" will now have no competitive advantage. STEP UP!

I'll explore more specifics, especially on BICE next week.

Our disclosure: We have all you need to know about the DOL Rule in 2 pages in "DOL Rule Abstract," including the Edward Jones plan, comments on other BD/IAs, and a process-centric detailed plan on our website See the resources section. We have the definitive fiduciary advantage book The New Fiduciary Sale, and a collection of 6-page guides that tell you exactly what to do coming the end of this month.

Stay Tuned…

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.