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There are three types of people in this world – those who make things happen, those who watch things happen and those who wonder what the heck just happened. You don’t want to be in the latter category. Unfortunately, many financial professionals will find themselves firmly rooted in that category as they take a “wait and see” approach to the Department of Labor’s (DOL) fiduciary rule.
In a rare interview with Harvard Business School that was published online earlier this month, (it has since been taken down) value investor Seth Klarman spoke at length about his investment process, philosophy and the changes value investors have had to overcome during the past decade. Klarman’s hedge fund, the Boston-based Baupost has one of Read More
As the industry collectively holds its breath on whether court challenges or the Trump administration can alter or repeal the rule, the well-prepared advisors are already bracing for the changes that will need to take place within their practices.
The smart play is to operate under the assumption that the ruling will hold its course and take effect as planned. As part of that preparation, many advisory firms need to re-evaluate how they do business.
While it’s well-known that the DOL’s fiduciary ruling requires all financial advisors to put their clients’ interests first, financial services professionals are still unable to know how broad of an impact the ruling will have on other aspects of their practice, including marketing. The rule itself doesn’t specifically change the regulation surrounding marketing activities, but as much is implied.
What changes in a post-DOL world?
From a marketing perspective, we will see four changes take place in a post-DOL world. As a result, financial advisors will need to revamp their marketing approaches to survive and capitalize on the opportunity.
Change #1: A shift away from product-focused marketing
A simple example is advertisements that are specific to a particular product or product category, like mutual funds, separately managed accounts or annuities. While this isn’t necessarily a requirement of the rule, advisors would be well-served to avoid marketing the product of the day. A better alternative is for advertisements to be focused on a planning strategy, rather than a specific one-size-fits-all solution.
Change #2: Misleading advertising will gain heightened scrutiny
This will happen for two reasons – the newly formed “financial institution” and the newly formed opportunity for plaintiffs’ attorneys. If you are a FINRA-registered representative, you’re likely familiar with advertising review. Financial professionals who operate solely on the insurance side or investment-advisory side of the equation will likely see a new trend develop: Advertising review requirements from their financial institution, as newly defined by the DOL.
The other reason we will see misleading advertising gain more attention is a little more contentious. Just as you’ve seen plaintiffs’ attorneys posting billboards and running TV ads looking for people on whose behalf they might be able to win a lawsuit, this rule could open the door for that to take place in the financial industry. The easiest pickings for these attorneys will be egregious and misleading advertising.
Change #3: Definitive statements about 401(k) rollovers will need to be curtailed
I’ve heard and seen countless pieces of marketing give the direct advice that somebody should roll over their 401(k). According to the rule, such a definitive statement could fall outside the scope of “best interests.” It may or may not be in somebody’s best interests to transfer their 401(k) to an IRA, but an advisor’s marketing will need to be careful, so as to avoid being so declarative in nature.
By Mark Mersman, read the full article here.