CHICAGO – Many advisers who already operate under a fiduciary standard may be under the impression that the new Department of Labor regulations won’t affect their business.

That is not the case, according to Morningstar Senior Equity Analyst Michael Wong, who joined an expert panel debating the impact of the rule at the Morningstar Investment Conference.

Instead, advisers across all channels need to be prepared for how the new rule will impact the industry. Morningstar research estimates that $3 trillion in full-service wealth management assets will be affected.

“The rule will broadly affect the financial sector, from mutual fund and insurance companies to wealth management firms and investors,” Wong said.

Additional requirements apply, and all advisers need to be conscious of how these requirements – notably those brought on by the rule’s best interest contract exemption – may affect how they work with clients. Particularly, Wong notes it will be difficult for all advisory businesses to receive third-party payments and commissions, regardless of whether they are independent.


However, there’s a relatively simple way for advisers to ready their practice for fiduciary impact – by shifting the emphasis toward holistic financial planning and away from products.

“We’re seeing an evolution and [the fiduciary rule] is a huge catalyst,” said Tricia Rothschild, head of global advisor solutions at Morningstar. “It is very difficult to prove you’re acting in the best interest of your client without [planning].”

In addition to being a natural progression, Rothschild added, the seismic shift toward planning “speaks directly to the value of the adviser.”

That said, she argued that too many firms were spending time fighting the fiduciary rule rather than preparing for the changes and requirements that are coming. And with President Obama’s vow to veto any new anti-fiduciary legislation from Congress, Wong says the rule’s full enactment is likely inevitable.

Anthony Serhan, Morningstar’s managing director of research strategy for Asia-Pacific, described how a similar rule affected the industry in Australia, where he’s based.

“The unbundling of the fee arrangement has already happened,” he said. This shift can provide a new opportunity in the product space — especially with so many people retiring in the years to come.

Morningstar's Michael Wong, Tricia Rothschild, Anthony Serhan and Paul Ellenbogen (left to right) discuss the impact of the fiduciary rule. Photo by Jim Tweedie.
Morningstar's Michael Wong, Tricia Rothschild, Anthony Serhan and Paul Ellenbogen (left to right) discuss the impact of the fiduciary rule. Photo by Jim Tweedie.

“We can expect products to become more customizable as the emphasis shifts toward planning,” he said. “The opportunity is still huge for products.”


Rothschild offered a simple way for advisers to ensure they’re complying with the new rule: “I call it the 3-D system,” she said. “Determine if [investment decisions] are in the best interest of your client, demonstrate and document.”

Demonstration, she emphasized, is key. When an audience member asked whether liability would be added to ratings and awards systems, Serhan stressed that Morningstar would be “quite clear with what they’re trying to do with ratings.”

“Advisers just need to demonstrate they understand the client's needs when using ratings in their decision-making process,” he said. Additionally, advisers can help bolster their credibility with clients by using independent rather than in-house research to back their advice, Rothschild added.

Maddy Perkins

Maddy Perkins

Maddy Perkins is the Assistant Managing Editor for Financial Planning, Bank Investment Consultant and On Wall Street.