Navigating the New DOL Fiduciary Rule Given Regulatory Uncertainty
As a new administration takes over the White House, we have some considerations for you on the new DOL Fiduciary Rule.
Now that the election is past us, we know that a Republican will be in the White House supported by a Republican Congress. President Trump’s administration will be intent on rolling back regulations implemented since the credit crisis and there is much speculation that the Department of Labor’s Conflict of Interest Rule (a.k.a. Fiduciary Rule) is in its site lines.
Many organizations are in the process of evaluating what direction to take given the uncertain future of the Fiduciary Rule. Below are a few considerations to keep in mind as the new administration takes over in January 2017 and the pending compliance dates in April 2017 draw nearer.
Understand your Distribution Channels
Many agents and brokers have been preparing for the Rule and are intent on proceeding as though it will go into effect. Regardless of your own company’s speculation in a time of regulatory uncertainty, it is important to seek clarity as to whether your products ultimately be in the customer’s best interest and will continue to be sold through your distribution partners.
If the rule does not actually take hold, yet agents and brokers wish to act as a fiduciary, your products may still need to comply with aspects of the rule.
Think “Customer First”
Many FinTech and InsureTech companies are disrupting traditional financial institutions through innovation, rapid product development cycles and, most importantly, a “customer first” view. Traditional institutions are continuously seeking opportunities to defend against this disruption.
As the large baby boom generation sails off into retirement, record levels of rollovers will occur in the coming years (according to the Rule, rollovers are expected to approach $2.4 trillion cumulatively from 2016 through 2020). An educated customer base may demand more than mere suitability; they may demand that their financial advisor meet a fiduciary standard.
The question is: Will you be ready to serve them?
Take the Long View
Election cycles come and go, as do presidential administrations and the majority party in Congress. History tells us that the regulatory environment will swing back and forth. It will be important to understand where the advice market may be in the next 10 to 20 years.
Evaluate the degree to which you believe robo-advisors will be commonplace. In an era of big data and machine learning, there is a strong likelihood that these will continue to grow in popularity and reduce operational expenses.
Consider an investment in relevant capabilities regardless of what direction regulation takes in the coming months.
Future of Regulation
Traditional wisdom holds that the Democratic party favors a strong regulatory environment while the Republican party prefers less regulation, allowing market-driven forces to drive the direction of industry.
While the “official” Rule may not take effect, industry forces may still strongly move in the direction of the proposed fiduciary standards. And, those who do adopt the standards may realize a competitive advantage that leads to gaining market share.
Finally, the financial industry is primarily about managing risk, for ourselves and our clients. This can take many forms: market, liquidity, legal, operational and regulatory. While the Trump administration may reduce regulatory risk, it is important to not lose sight of other areas of risks – in this case, risk arising from a changing competitive landscape.
Count on Us
At Centric, we work to understand your unique culture, circumstances, and what drives your decisions in operating your department or business. From there, we focus on where you need help and work to mobilize the right assistance whether it’s a person or a team.
Our unique blend of industry perspective, business and technology services combined with our flexible, local delivery approach allows us to help you achieve compliance and strengthen your position in the marketplace. From expertise in impact analysis to large-scale, enterprise-wide program and change management and more, we are here to help.
We are just getting started, but we’d love to hear your thoughts on the impacts of this industry rule and, of course, if you’re in need of some perspective or assistance in your efforts, you can call on and count on us.