{"id":6915,"date":"2025-01-20T16:49:16","date_gmt":"2025-01-20T16:49:16","guid":{"rendered":"https:\/\/www.blueleaf.com\/blog\/how-the-dol-rule-change-creates-massive-hidden-threats-to-rias\/"},"modified":"2025-01-20T16:49:17","modified_gmt":"2025-01-20T16:49:17","slug":"how-the-dol-rule-change-creates-massive-hidden-threats-to-rias","status":"publish","type":"post","link":"https:\/\/www.blueleaf.com\/blog\/how-the-dol-rule-change-creates-massive-hidden-threats-to-rias\/","title":{"rendered":"How the DOL Rule Change Creates Massive Hidden Threats to RIAs"},"content":{"rendered":"

After years of debate and public comment the DOL issued its final rule<\/a> earlier this year. In fact, the discussion has dragged on so long that this article essentially started 5 years ago based on a 2011 post by Michael Kitces here.<\/a> On April 10, 2017 all financial professionals will be obligated to provide advice that is in a client\u2019s \u201cbest interests\u201d. Suitable will no longer cut it in retirement accounts.<\/p>\n

Broker\/dealer reps, insurance agents, and others who work on commission will have to migrate retirement accounts to fee-based compensation or disclose potential conflicts.<\/p>\n

RIAs? You\u2019ve got bigger problems than compliance<\/h2>\n

How about RIAs? You won\u2019t be impacted because you\u2019re already held to a fiduciary standard, right? Not exactly.<\/p>\n

While it is true that compliance changes won\u2019t be a big deal for fee-only RIAs, we don\u2019t agree with sources who conclude that the minimal compliance impact means that the DOL is an unmitigated win for RIAs<\/a>.<\/p>\n

A closer inspection reveals big changes in how financial services will be marketed and sold – therein lay major potential threats to your practice unless you prepare for the changes to the landscape.<\/p>\n

RIAs will have more than 641,000 new competitors<\/h2>\n

Wouldn\u2019t it be wonderful if all\u00a0641,000 broker\/dealer<\/a> reps, every insurance agent selling annuities, and all other commission-based advisors\u00a0decided to abandon 401(k) and IRA accounts? To retire or finally pursue that dream career juggling chainsaws?<\/p>\n

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Your practice would be bombarded with clients! No shock here. It won\u2019t happen.<\/p>\n

The rule just accelerates the trend of transparency and independence in our industry. Firms which compensate reps on commission will migrate clients to fee-based structures. Commissions will not be worth the regulatory costs, client friction, and litigation risk.<\/p>\n

But eliminating commissions will cost the financial services industry about $2.4B\/year. So how will these firms cover that shortfall?<\/p>\n

Independent broker\/dealers reps will pursue your best clients<\/h3>\n

Independent B\/D reps will need to cover commission revenue losses. Some\u00a0are excellent wealth managers who will continue working in their clients\u2019 best interest under a fee-based structure. Many\u00a0are very good sales people who will seize the opportunity to bring on new clients as an RIA.<\/p>\n

Expect them to try and convert your clients to their practice. We know you\u2019re not worried. However, in combination with the following it could be more than just an annoyance for your practice.<\/p>\n

Large firms will compete for market share – and your future clients<\/h3>\n

Large firms like Merrill Lynch are already dropping commissions on retirement accounts and \u201cmaking significant investments that align with the spirit of the rule<\/a>.\u201d<\/p>\n

Behind these \u2018heartfelt\u2019 assurances lies an inconvenient truth for a publicly-traded financial services company: Merrill needs to recover revenue losses from the DOL\u2019s rule and position themselves for growth.<\/p>\n

\u201cSignificant investments\u201d will be in technology which allows them to service more accounts per rep and to get market share. They will be creating the same infrastructure used by sites like Wealthfront and Betterment. We know because this is same technology Blueleaf has built for our customers.<\/p>\n

Consequence? Large firms will be competing harder than ever for your future clients with improved offerings that will sound like your practice.<\/p>\n

Bad? Yeah. But unfortunately it get\u2019s worse…<\/p>\n

It will be harder to get your marketing message to resonate with clients<\/h2>\n

Selling financial services is always tough because competition and customer confusion make it hard to get your message across through the noise.<\/p>\n

It is about to get much, much harder.<\/p>\n

Clients will be bombarded with Billions of dollars advertising and a whole slew of of confusing messages in a short period of time. Fiduciary? Best Interests? Fee-based? DOL? Huh?<\/p>\n

Some commissioned advisors will be having uncomfortable conversations about new fees or asking clients to sign confusing disclosure forms. Many brokers will be calling about amazing new retirement planning services they started.<\/p>\n

And \u2026 unfortunately … some bad actors are going to emerge. Through ignorance or desperation some commission-based service providers will make outrageous claims or offer cut-rate services. The worst ones will amplify fear and confusion.<\/p>\n

This noise will make it harder to retain your existing clients that might be on the fence and getting new clients will be much tougher.<\/p>\n

Large firms see a marketing opportunity to undermine your best sales pitch<\/h3>\n

\u201cUnbiased advice\u201d will no longer be a differentiator for you. Large firms (with big marketing budgets) will use the DOL\u2019s rule as an opportunity to reposition themselves through advertising.<\/p>\n

Merrill Lynch is already touting their commitment to a higher standard for retirement<\/a>. Do you rely on being \u201cfee-only\u201d as a differentiator? Have you won clients frustrated over perceived conflicts of interest or account churning?<\/p>\n

Unfortunately your message will harder to distinguish in the eyes of customers.<\/p>\n

How to defend your practice against this new competition<\/h2>\n

Get ahead of the noise by communicating with clients<\/h3>\n

The best way to defend against new competitive threats is to get ahead of them. Here is a sample email you can use to start a conversation and begin to inoculate your practice:<\/p>\n

\n

Subject: How the new DOL rule affects your retirement<\/em><\/p>\n

We\u2019ve got some great news – the Department of Labor is finally requiring all financial advisors to adhere to the same level of transparency and fairness that we have with you.<\/em><\/p>\n

You may soon hear about a new DOL\u2019s fiduciary rule and wonder what it means for your IRAs and 401(k) accounts. Here is what you need to do: nothing.<\/em><\/p>\n

At least that\u2019s true for the accounts we service for you. If you have retirement accounts elsewhere like a 401k, 403b or an other outside retirement account, it might be a good time to discuss potential impact with us.<\/em><\/p>\n

The new rule requires some financial services professionals to change their compensation structure to align with client interests. We already adhere to this high standard.<\/em><\/p>\n

You may hear advisers talking about a \u201cnew higher standard for retirement accounts.\u201d These firms may be new to the idea of putting you first.<\/em><\/p>\n

We\u2019ve always put you first and we always will. It\u2019s built into our founding principles.<\/em><\/p>\n

If you have any questions about the your retirement accounts don\u2019t hesitate to contact us. We\u2019ll be happy to talk about your situation as always.<\/em><\/p>\n

\n

Compete based on personalization and concrete value proposition<\/h3>\n

You will need a new messaging strategy to thrive in the coming war for market share with large firms. \u201cFair, transparent and conflict-free\u201d compensation will not be differentiated.<\/p>\n

So what will<\/em> work? A concrete, personalized value proposition.<\/p>\n

Merrill Lynch will be serving more accounts with fewer reps making generic promises. You have a new opportunity to deliver concrete, demonstrable and personalized value for your clients. But for this to work clients need to understand what you\u2019re doing and how you\u2019re adding value.<\/p>\n

But don\u2019t worry – that\u2019s where we can help you.<\/p>\n

Blueleaf is your partner for thriving during these new challenges<\/h2>\n

The DOL\u2019s rule is one of the most disruptive changes to our industry in years. Nobody can predict how it will impact your firm – and we can\u2019t either.<\/p>\n

But this rule only accelerates an inevitable change: clients will demand better service for lower fees. Fortunately we created Blueleaf<\/a> to help you overcome these very challenges.<\/p>\n

Don\u2019t have $5M for a 30-sec Super Bowl ad to compete with Merrill Lynch?<\/strong> No worries, we\u2019ve got you covered. Leverage branded, automated email updates<\/a> for clients and prospects. Unlike the big boys who\u2019ll pay millions, as a Blueleaf customer your cost per brand impression will be $0. You can connect with prospects or clients weekly, monthly or based on events. Your value to them will always be front and center.<\/p>\n

Lots of noise in the market confusing prospects?<\/strong> Give them a \u201ctry before you buy\u201d<\/em> offer with Blueleaf prospecting. They get to experience what it\u2019s like to be a client by experiencing your client platform. You can automatically collect information about them, deliver it\u00a0to any\u00a0system and\u00a0generate a personalized proposal to win them every time.<\/p>\n

Not getting credit for the work you do? <\/strong>Blueleaf allows you to tailor your clients’ experience so your value proposition infuses every communication and interaction. They\u2019ll see their held-away assets (like 401Ks) through your unique lens and the system reminds them about you every time they look at their assets.<\/p>\n

Can you imagine being ready 5 minutes from now?<\/h3>\n

Don\u2019t delay! Start your free Blueleaf trial today<\/a> and in just a few minutes you\u2019ll be ready to lead your practice through these historic changes.<\/p>\n

Photo credit: Leon Benjamin<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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