Could the DOL’s Fiduciary Rule be an Opportunity for Financial Advisors?
In 2016, the Department of Labor announced a significant overhaul to the Employee Retirement Income Security Act of 1974 (ERISA) to broaden the definition of an “investment advice fiduciary.” The new rule brought about major changes, so it was naturally met with fierce debate and opposition from lawmakers and the investment industry, forcing the new rule to be implemented later than originally planned. Even now that the new rule is being rolled out, efforts are still in play to put an end to it.
Despite the fact that the ruling has been major news in the investment industry, the majority of consumers simply haven’t heard about it. Research from Market Strategies shows that while the ongoing debate helped raise awareness of the rule, about 6 out of 10 investors were still unfamiliar with the ruling. And when they conducted some less scientific research by simply asking people on the street about the ruling, many of the people who had heard about the ruling were unclear on what a fiduciary actually is. Some of the responses they received included things like, “It’s part of a will,” “It’s about the amount of money you have to pay,” “Someone who is financially responsible,” and “It has to do with money.”
But there is a very important finding in this for those who work in the investment industry. Market Strategies also found that 73% of investors who were familiar with the ruling said they would want to work with an advisor who is a fiduciary. So while there is a lack of general awareness about what a fiduciary is, once people understand the term and the level of responsibility a fiduciary has to clients, the more likely they are to want to work with one.
While the long-term future of the new DOL Fiduciary Rule remains up in the air, advisors who choose to become fiduciaries rather than stick to the suitability standard could actually have a great opportunity to set themselves apart from competitors. Since so many consumers are wary of trusting financial advisors, the assurance of knowing an advisor is being held to such high standards could greatly benefit both the consumer and the professional. But because the average consumer is likely to be unclear on what the responsibilities of a fiduciary actually are, it’s very important for fiduciaries to promote their status and educate their clients about what that means for them. The debate surrounding the rule has helped boost consumer awareness, but it can only do so much. It’s up to advisors who are fiduciaries to make the most of this opportunity.
