Capturing the Million Dollar Rollover

Will The DOL Rule Survive

RIAs may be getting a barrage of questions for their top clients when, and if (still a big “if”) there are new fiduciary rule changes.  “I think consumers are going to hold financial advisors to a higher standard now,” warned Ben Rizzuto, retirement director for Janus in their wealth advisor services group of out of Denver.

Rizzuto hosted a webcast with RIA Channel on Friday titled “Capturing the Million Dollar Rollover” Watch the Reply Here Now, which gave investment advisors some ideas on how to deal with new competition from company 401k plans and tighter regulations. Those 401k plans want to keep those assets because it comes them more negotiating power, allowing them to negotiate lower fees. They’re bringing on certified financial planners and best-in-class investment options to keep their high net worth holders in their funds instead of rolling over into an IRA with their local advisory after retirement.

At the same time, the DOL Fidiciary Rule might make it harder for independent advisors to do business due to an increase in disclosure forms, among other things, for clients rolling into individual retirement accounts.

The webinar was full of case studies and possible questions RIAs might get from clients. Like: “I received a letter in the mail from your firm telling me that a new law will require you to put my interests ahead of yours. Haven’t you always put my interests first?”

Janus’s blanket response: “We have always provided thoughtful and deliberate advice to our clients. This standard of care has differentiated our services from many competitors. Now, the industry has changed the rules and is requiring a higher standard from all financial advisors across the industry. Our practice is more than prepared to comply with these new regulations.”

Rizzuto says the answer depends on how individual practices implement the rule. It depends on the level of advice, and the process for that advice.

“If you can show them that you can provide value to after rolling out of their 401k, then you will be in in good shape,” he says.

The acting SEC chair is no fan of the Department of Labor’s fiduciary rule.

“I have a very nuanced view of the DoL fiduciary duty rule: I think it is a terrible, horrible, no-good, very bad rule,” Chairman Michael Piwowar has been quoted saying in the press.  “For me, that rule was never ever about investor protection…it was about one thing and it was about enabling trial lawyers to increase profits.”

That’s one way of looking at it.

Janus didn’t go there.

The 60-day delay that has been proposed on the rule defining advisor roles puts a lot of business on hold. “The sense that I’ve gotten from a number of people is that you can get another postponement and then after that we will probably get to a point of time when the rule is changed…or killed all together.”

Rollovers have been around for 20 years, but the roughly $4.4 trillion market faces a perfect storm of demographical changes (75 million baby boomers and over the next 20 years, 10,000 people will turn 65 every day faced with the decision of what to do with their 401k) and regulatory shifts.

The DOL fiduciary rule was designed to make sure financial advisors act in their clients best interest, avoids conflicts of interest when possible (partnering with certain mutual fund firms), and is transparent regarding compensation and fees. The fiduciary rule is not supported by everyone in the financial services industry, but is considered a workable rule. The delay in implementation could lead to scrapping the rule altogether.

The rule leaves financial services firms and advisors open to legal and other costs associated with providing advice, which would likely be passed down to consumers over time.