DOL Fiduciary Rule: Opportunities in Confusion
While the Department of Labor’s on-again/off-again fiduciary responsibility rule may be leading to confusion at best and, at worst, the potential for predatory practices among businesses that sponsor retirement and benefit plans, advisors can turn this confusion into an opportunity to improve current relationships and gain new ones by focusing on education and client support.
“Most people don’t even know they’re a fiduciary,” said John Benitoa, financial advisor with UBS’s Gulf Coast Group in Tampa, Florida, in an interview. “Help your clients out as much as possible. Work with them to make sure they understand.”
Beware the Scare Tactic
The fiduciary rule change was ostensibly designed to improve protections around American retirement savings from predatory practices. While those protections are generally a good thing, the confusion surrounding the rule change may have inadvertently resulted in a new set of questionable tactics being adopted in some cases.
Benitoa gave the example of a healthcare producer he works with. Shortly after the rule change was announced, he said, that client received a promotional package in the mail from an outside advisor trying to poach his business.
“They told my client they weren’t getting fiduciary services, which they are. But because some people don’t really know enough about their own fiduciary obligations, they can be easy prey for something like this,” Benitoa said. “When people ask me about the fiduciary rule, it’s usually because of cold-calling telemarketers trying to scare them into switching to a new advisor, not because they’re taking it upon themselves to wonder.”
This opportunity for scare tactics exists, Benitoa said, because employers don’t know enough about their own fiduciary obligations, nor about the financial professional responsible for advising their company plan.
“Most of the time, the new prospects I meet don’t even know who their financial advisor is, or they’ll name the education specialist from the record keeper as their plan advisor. They don’t have a relationship with the person they’re paying to be responsible for their plan’s well-being.”
That kind of confusion may be disheartening, but it’s also a golden opportunity for advisors to reinforce their client relationships through education and support.
“The better your clients understand their own fiduciary obligations and what you as an advisor do for them,” said Jason Smith, CEO of the JL Smith Group of Tax and Wealth Advisors, in an interview, “the less likely they’ll be to make bad decisions based on fear and misinformation.”
Help Your Clients, Grow Your Business
“The first question I ask a new prospect,” said Benitoa, “is when is the last time you saw your financial advisor? More than half the time, they tell me they don’t have one on their plan, or that they don’t know.”
If that sounds like you, the first thing to do is check in with your clients if they haven’t already reached out with questions on the fiduciary rule (or anything else).
Combat confusion by helping your client understand what it means to be a fiduciary. And clarify — because one third of plan sponsors surveyed for MassMutual’s A Winning Combination study said they are not a fiduciary to their plan, and 15 percent didn’t know whether they were or not.1 And let them know whether they’re selecting investments themselves or having you do it for them, they bear fiduciary responsibility to their plan.
“Employers want to do right by their employees,” said Juli McNeely, president of McNeely Financial Services and past president of the National Association of Insurance and Financial Advisors, in a recent interview. “They want what’s best for their employees. Otherwise, they wouldn’t have offered a retirement plan to begin with.”
It’s the advisor’s job, McNeely continued, to meet with plan sponsors on a consistent basis and make sure everything is performing well.
Do regular plan reviews with your clients on a schedule that makes sense, whether that’s quarterly or at some other interval, and remind them of their fiduciary role at every review. It might seem like a pain, but patience is a virtue here: plan sponsors are more likely to be thinking about the day-to-day running of their business than worrying over whether they’re upholding their fiduciary responsibilities.
Helping sponsors know where they stand in the fiduciary landscape and consistently touching base with them builds trust and reinforces a working relationship between you and your client, which opens the way for you to deliver on the three things plan sponsors want most, according to the Winning Combination study: employee education, good customer service, and reducing plan costs.
In fact, the study found that 47 percent of sponsors want their advisor to provide education semi-annually or more, while 95 percent associate good service with reviewing their plan and its investment performance. And of plan sponsors who dumped their advisor, 41 percent cited “bad advisor” as the reason for the break.
Sponsors want to work with advisors who are knowledgeable, trustworthy and highly responsive to their needs, according to the Winning Combination study. One third of plan sponsors not working with an advisor are likely to do so in the future, the study says, and because 90 percent of retirement plan sponsors find their advisor through referrals2, proving your value with your current clients won’t just strengthen your current book of business – it could also open the door to more business down the line with clients who’ve already heard good things about you.
“I can’t tell you there aren’t any advisors out there who haven’t put their own best interest before their clients,” McNeely said. “But I’ll tell you the same thing I testified to the Department of Labor: Do you really think my firm would have been in business for 45 years in the same town of under 2,000 people if we were out there robbing people? If we were treating people poorly, they would walk away. And they should!”
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The information provided is not written or intended as specific tax or legal advice. MassMutual, its employees and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own, and do not necessarily represent the views of Massachusetts Mutual Life Insurance Company.
1 MassMutual, A Winning Combination research report, 2016, https://www.massmutual.com/-/media/files/rs7153_brochure.pdf?la=en
2 MassMutual Retirement Plan Referrals study, 2016