How the DOL Rule Change Creates Massive Hidden Threats to RIAs

After years of debate and public comment the DOL issued its final rule 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. On April 10, 2017 all financial professionals will be obligated to provide advice that is in a client’s “best interests”. Suitable will no longer cut it in retirement accounts.

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.

RIAs? You’ve got bigger problems than compliance

How about RIAs? You won’t be impacted because you’re already held to a fiduciary standard, right? Not exactly.

While it is true that compliance changes won’t be a big deal for fee-only RIAs, we don’t agree with sources who conclude that the minimal compliance impact mean that the DOL is an unmitigated win for RIAs.

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.

RIAs will have more than 641,000 new competitors

Wouldn’t it be wonderful if all 641,000 broker/dealer reps, every insurance agent selling annuities, and all other commission-based advisors decided to abandon 401(k) and IRA accounts? To retire or finally pursue that dream career juggling chainsaws?

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Your practice would be bombarded with clients! No shock here. It won’t happen.

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.

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

Independent broker/dealers reps will pursue your best clients

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

Expect them to try and convert your clients to their practice. We know you’re not worried. However, in combination with the following it could be more than just an annoyance for your practice.

Large firms will compete for market share — and your future clients

Large firms like Merrill Lynch are already dropping commissions on retirement accounts and “making significant investments that align with the spirit of the rule.”

Behind these ‘heartfelt’ assurances lies an inconvenient truth for a publicly-traded financial services company: Merrill needs to recover revenue losses from the DOL’s rule and position themselves for growth.

“Significant investments” 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.

Consequence? Large firms will be competing harder than ever for your future clients with improved offerings that will sound like your practice.

Bad? Yeah. But unfortunately it get’s worse…

It will be harder to get your marketing message to resonate with clients

Selling financial services is always tough because competition and customer confusion make it hard to get your message across through the noise.

It is about to get much, much harder.

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?

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.

And … 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.

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.

Large firms see a marketing opportunity to undermine your best sales pitch

“Unbiased advice” will no longer be a differentiator for you. Large firms (with big marketing budgets) will use the DOL’s rule as an opportunity to reposition themselves through advertising.

Merrill Lynch is already touting their commitment to a higher standard for retirement. Do you rely on being “fee-only” as a differentiator? Have you won clients frustrated over perceived conflicts of interest or account churning?

Unfortunately your message will harder to distinguish in the eyes of customers.

How to defend your practice against this new competition

Get ahead of the noise by communicating with clients

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:


Subject: How the new DOL rule affects your retirement

We’ve 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.

You may soon hear about a new DOL’s fiduciary rule and wonder what it means for your IRAs and 401(k) accounts. Here is what you need to do: nothing.

At least that’s 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.

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.

You may hear advisers talking about a “new higher standard for retirement accounts.” These firms may be new to the idea of putting you first.

We’ve always put you first and we always will. It’s built into our founding principles.

If you have any questions about the your retirement accounts don’t hesitate to contact us. We’ll be happy to talk about your situation as always.


Compete based on personalization and concrete value proposition

You will need a new messaging strategy to thrive in the coming war for market share with large firms. “Fair, transparent and conflict-free” compensation will not be differentiated.

So what will work? A concrete, personalized value proposition.

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’re doing and how you’re adding value.

But don’t worry — that’s where we can help you.

Blueleaf is your partner for thriving during these new challenges

The DOL’s 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’t either.

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

Don’t have $5M for a 30-sec Super Bowl ad to compete with Merrill Lynch? No worries, we’ve got you covered. Leverage branded, automated email updates for clients and prospects. Unlike the big boys who’ll 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.

Lots of noise in the market confusing prospects? Give them a “try before you buy” offer with Blueleaf prospecting. They get to experience what it’s like to be a client by experiencing your client platform. You can automatically collect information about them, deliver it to any system and generate a personalized proposal to win them every time.

Not getting credit for the work you do? Blueleaf allows you to tailor your clients’ experience so your value proposition infuses every communication and interaction. They’ll 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.

Can you imagine being ready 5 minutes from now?

Don’t delay! Start your free Blueleaf trial today and in just a few minutes you’ll be ready to lead your practice through these historic changes.

Photo credit: Leon Benjamin


Originally published at The Scalable Advisor.