How will the new Department of Labor regulation impact you? Here is how I’d suggest you prepare your practice moving forward.
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What should you expect from the new regulation from the Department of Labor? This is a fun and exciting time, to put things mildly, so I hope that your firm has helped you prepare as much as we have at Liberty Partners. Here is what I recommend you do to prepare for this regulation.First, sit back and ask yourself whether this new regulation is going to impact you. If you don’t think that it will, I’d suggest that you spend a little more time reading up on it because I think that it’s going to affect all of us. This is even true on the RIA side, though maybe to a smaller extent.On the RIA side, I think that you may have the majority of your fiduciary role taken care of, but it probably isn’t as well-documented as it should be going forward. Remember, with the ERISA fiduciary rule, you no longer can simply disclose conflicts; you’re going to have to eliminate them.Clearly, the impact on these regulations is that they will become fee-based rather than commission-based, so if you still have a large book of business or a block of business on a broker-dealer platform, this has an obvious impact on your business. This will need to be addressed significantly between now and April 10th and obviously before the end of 2017.It’s important to take a second look at this regulation and make sure that we all, as business owners, are prepared for it. So what should you do?The first thing that I would suggest you do is analyze your current accounts and the holdings in those accounts, then have a conversation with your clients about the regulations and how they’re going to have an impact on your relationship with them.I would also be sure to have a very well-thought-out procedure for each type of account and type of client as well as some recommendations on how to adapt to the new regulations. I don’t think it’s too early to get started on this. Clearly, if you’re in a traded commission-based account, it’s going to make sense to start looking at a fee-based account for those types of clients.If the account is in a commission-based account at a broker-dealer and not traded very often, then you’ll probably want to wait and see what your broker-dealer’s policy is going to be as it relates to a best interest contract exemption.There are four options for your existing clientele, so I would work with your broker-dealer to determine what those options are.Once you have a game plan, take the time to learn about this regulation.Secondly, if you don’t have a Series 65 or some type of exemption due to a law degree or certified financial planner or financial analyst designation, then I would suggest ordering the study materials for your 65 or 66. If you think that you’re too old to do that, then I would start working with a firm that has a robust practice succession program so that you don’t have to uproot your career before retirement.Something else that I suggest you do is start building a system to make sure that all of your client interactions, the analyses you do for your clients, your product recommendations, the benchmarking you do, and your ongoing analysis are all documented in a very robust digital documentation system. So what’s next after we prepare for this new regulation? Once you have your game plan, take the time to learn about this regulation. You need to protect yourself and your practice from overall and too-far-reaching policies that are implemented at your broker-dealer and your RIA. Make sure that you understand the regulations and how it’s going to impact you so that you can push back internally on any regulations or compliance or branding policy that you feel might be a little self-serving.I’d also recommend learning more about comprehensive financial planning. Some level of a comprehensive financial plan is going to need to be done in order to comply with the regulation, so you might as well take advantage of it to identify some of the revenue opportunities, like on the protection planning side of the business.Finally, make sure that at the end of the day, you never fail to take advantage of a major forced transition in the industry. If, during the transition, you have an opportunity to modernize the product portfolio, technology, or interactions that you offer in your practice, now might be the time to leverage the opportunity.All in all, I don’t think that this Department of Labor regulation is something to fear; it just now needs to be modified and well-documented. If you have any other questions about this regulation or transitioning as you move forward, give me a call or send me an email. I’d be happy to help you!