January 23, 2017 // By Heather Zimmerman
Retirement planning is all about risk consideration. Given that, perhaps there is no group more prepared to take on the changes of the new Department of Labor (DOL) ruling than the wealth management companies it most affects. That’s the hope anyway, because at first glance the changes look to be pretty dramatic.
The new changes from the DOL center around investor protection — specifically stemming the $17 billion investors incur each year in investment-related fees. That figure is far too large, according to the DOL, which feels the result is a swollen financial world where wealth management companies are putting their own profits ahead of their clients. The new law aims to change all that.
Analyzing the new regulations
The final rule contains numerous clauses that reshape the way financial advisers will handle their trade in the future. Perhaps none is more important than the potential the regulation creates for financial advisers to face litigation if they are unable to prove the advice they provide benefits their clients more than it does themselves. This principle alone is enough to have many wealth management companies reconsidering how they handle their business. In order to stem such concern, some are even considering a reshaped business model that favors set fees as opposed to transaction-based charges.
Who will be left behind?
In a fee-based wealth management model, there is concern that those with the smallest retirement accounts could be left behind, simply because wealth management companies won’t deem the accounts profitable enough. Firms are still analyzing how they will move forward from the DOL ruling, but experts caution that potential exists for smaller accounts to be left behind.
Technology’s role in satisfying client demands
The new ruling places wealth management companies in the role of fiduciaries, and these companies must now rethink how they will proceed with their businesses in the future. In addition, they must also determine how they will meet their clients' increased demands.
More than ever clients are pushing their wealth management companies to learn more about their investments as well as to become more well-known themselves. They are also searching for firms that will provide more personalized engagement and eliminate much of the friction the industry is known for.
With Donald Trump now officially in the White House, industry experts have cast doubt that the ruling will be implemented in April or if it will be put into action at all. Proponents of the rule argue it will protect the middle class, while opponents claim it will cause drastic increases in wealth management services. Given President Trump’s commitment to the working class but close ties to Wall Street, this is a difficult situation to read.
Whether or not the rule is delayed, forward-thinking wealth management companies are preparing to meet these challenges with investments in technology, many of which are chronicled in Magenic’s new whitepaper: "Wealth Management Gurus Upgrading I.T. to Meet DOL Challenges." You can learn more about the state of the industry and the role technology can play in supporting its future by downloading your copy of this whitepaper today.