The DoL has killed the business of transactional, single-product sales and has ushered in a new era based upon “process.”
But there’s a big, silver lining in the new fiduciary rule. The DoL gave an unintended gift to the business of retirement income distribution planning. Indeed, with the right mind-set, bank advisers can emerge from this new landscape-changing rule on more sure footing than ever before.
There are several reasons for this; here are three.
First, one of the inevitable consequences of DoL is commoditization. On the surface, that may seem counter-intuitive (after all, the new rule is a move away from transactional business, which may seem like a business model more likely to be commoditized and left to compete on just price.)
However, as much as the new rule should have been about risks, it wasn't. It was all about costs. The result is that commoditization of both product and advice has already begun. The DoL specifically mentioned robo advisers as a possible solution to provide investors with low- cost investment advice. Indeed, robos are springing-up everywhere. This trend will cause a generalized, long-term shrinking of investments management fees.
Indeed, more assets are shifting to low-cost ETFs, and large asset managers are already dropping fees. Large distribution organizations are working with insurers to reduce post-DoL commissions on annuity products by, in some cases, 50%, or more.
The upshot: In a marketplace where commoditization is operational, standing apart from other advisors and making certain that you do not become commoditized yourself amounts to a critical competitive advantage.
Next, income planning is the easiest market to disrupt. This is handled poorly by many advisers, but when executed properly, income planning almost always leads to the consolidation of all of the client’s investment assets with a new adviser. You want to be that new adviser. Never forget that retirement income is a zero-sum-game. It creates winners and losers. The outcome of income distribution planning is that assets almost always move.
Finally, because of asset consolidation, income distribution planning “expands the pie.” I can’t stress enough how important this is. When the marketplace for advice becomes commoditized, margins compress; products become more look-alike. Compensation is slashed. There is only one salve for this wound: attract more assets. Income planning makes the challenge of attracting new assets relatively easy to meet.
If you’re going to hitch your future to any process, make it income planning. Why? It’s the market where the people, the need and the assets are to be found.
Check back later this week for 5 actionable steps that advisers can take to benefit from these trends .
