The DOL Says “Clean It Up!”

On Wednesday, there were quite a few articles (including this one from FA Magazine) that hit my inbox regarding the Financial Service Institute’s (FSI) response to the Department of Labor’s (DOL) proposed rules on severely limiting or outright banning commissions in IRAs and other retirement accounts.

As I understand it, the potential ruling would basically limit or prohibit any advisor from providing commission-based advice for an ERISA account. In other words, IRAs and retirement plans would become fee-only if this ruling is handed down.

Considering the FSI doesn’t hold much hope for the DOL to change its mind, I think now may just be the perfect opportunity for advisors to look at ways to:

• Run a more efficient office

• Strengthen your brand and how clients (and prospects) see you

• Train and support younger advisors in your firm with smaller accounts

Clean up your book

When is the last time you took a thorough look at your book? Not just the A and B clients, but everyone who has given you assets to manage. My guess is that about half of your assets are qualified accounts and a good deal of your revenue is coming from them. If you are like most firms, you will find a number of those accounts have old 12(b)1 trails from a scattering of random mutual funds that you don’t really follow anymore, or the client brought with them. Do these accounts reflect your current investment process? Are they really getting your best thinking?

Some of the accounts have probably grown to a size that it would make sense to convert them to your current platform and processes. Some of the accounts are only paying .25bps when you may be providing 100bps worth of service. Others, you may want to transfer to someone else. I heard it said that the typical advisor’s book of business contains over 300 mutual fund tickers. Take a look at your book today and get out in front of any possible pending regulations.

Strengthen your brand

Your brand is a reflection of who you are, not what you say you do. It is what others think of when they think of you. Do you provide excellent client service, a great investment process or second–to-none financial planning and advice? Do you provide that service and advice to everyone, or just a few of your clients?

One of the benefits in cleaning up your book is the opportunity to meet with ALL of your client base, reinforcing your value and service. Your brand is only as good as your clients say it is, so make sure you use this time to discuss your role as a fiduciary, to re-profile them for any needs or concerns and work with them on any financial issues.

Mentor younger advisors

After a few years, not everyone in your book is going to fit your profile of the perfect client. They may not meet your account-size minimums anymore or they’re not profitable clients as your business has grown. You want to service the clients (and they do need servicing), but are you the right person to meet with them on an ongoing basis?

You have the opportunity to transition smaller (or less profitable) accounts to younger advisors in your office or in your community. Younger advisors are looking for mentoring and need training – giving them a few accounts to manage can help in their long-term growth, while freeing up your time to market to and meet with new clients and prospects. It is a win for you, the younger advisor – and especially the client. Win-Win-Win.

Get in front of it

It’s anyone’s guess what the ERISA-based fiduciary standards rule will look like or how it will be enacted. But that’s no excuse for inaction: successful advisors are proactive, not reactive, to situations in our industry. Do you want to be a leader, or get caught off-guard and scrambling for a solution?

Will you wait for the ruling and hope for the best, or get out in front of it will your clients?

PS. Please take 3 minutes and answer our quick poll on the advisor as a business owner. Your answers will remain anonymous and you’ll get a copy of the results.  Thanks!

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John Anderson

John Anderson

John Anderson is the creator and lead author of Practically Speaking blog and Managing Director of Practice Management Solutions for the SEI Advisor Network.

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