Breaking Down the Department of Labor’s New Fiduciary Standard, Part 2

Posted by Admin on Jun 29, 2017 6:00:00 PM

Last week, we provided an overview of the Department of Labor’s new fiduciary standard, set to go into effect this week, based on a number of presentations from experts around the country at IMCA’s Annual Conference Experience held last month. We discussed what the rule entailed and its legal implications for investment and wealth professionals. But what does this mean in practical terms? How might they need to change their practices and products to stay competitive under this new standard?

There are four key areas where the fiduciary standard could potentially impact business models—pricing, product preferences, distribution models and how to integrate and leverage emerging technologies. Let’s take a look at each of these:

  • Pricing. This point is quite intuitive, but under the fiduciary rule, lower-priced products are likely to be advantaged, as the standard discourages higher-commission products (which advisors are incentivized to sell). An example of this, reports, is the potential growth of T share classes for mutual funds. This share class entails lower front-end and trailing fees, and differs from currently favored A shares because these fees do not vary by product. More generally, the rule will favor lower-cost products as compared to peers.
  • Product preferences. This is closely tied to pricing changes. Some advisors may favor passive investments over active investments, as will simpler products—those that can be marketed, benchmarked, and that investors can understand. However, we may see an exception to this simplification with annuities. In late 2016, the DOL expressed support for annuities as lifetime income options.
  • Distribution models. The rule stands to affect the way investment firms market their fee-based versus commission-based products. It is ultimately requiring firms—both large and independent—to rethink the way they service plans, with potential options including increasing training for advisors and refocusing new product and service offerings on fees. Many firms are moving forward with these changes now, and it’s unlikely that they’ll be looking back.
  • Leveraging technology. The use of technology will be critical to remaining competitive—in terms of both service and cost—under the new standard. The growth of robo-advisors points to a broader trend of investors increasingly preferring technology-driven solutions, particularly among younger generations who have limited assets and are in wealth-building mode. It will be imperative for investment and wealth professionals to find a way to cater to these investors while also demonstrating the value of personalized advice and education.

The ultimate outcome of all these changes, at the end of the day, is that we will likely see a greater professionalization of advice and higher conduct standards for investment and wealth professionals. But investment and wealth professionals shouldn’t stop at the minimum requirements; federal and state regulations are the lowest bar, and demonstrating a higher ethical standard (as evidenced by professional designations like CIMA and CPWA) can help win business and loyalty. The bottom line? Do what is right—skillfully and profitably.

Welcome to The Institute Blog:  Investment Sense - Advanced analysis for today’s savvy advisors

Investment Sense provides expert thinking on the relevant topics that impact your business along with  updates from the Institute that will keep you up to speed on important happenings at your professional association. Industry experts—practitioners, academics and economists—will provide the latest thinking on today’s important topics, and you’ll hear from Institute volunteers and staff on association news that impacts your membership and certification.   


Subscribe Here!

Recent Posts

We encourage you to read the latest posts, share content with colleagues and peers, and let us know what you think. You can comment on a blog post or email us at with feedback.

Have ideas for future topics or interest in submitting a blog post? Email us at to let us know.