One of the biggest surprises for Envestnet in general, and Lincoln Ross specifically, from the DOL’s final fiduciary rule is the compliance timing.
“We thought it would be an 8-month implementation window and it turns out it’s a phased approach to accommodate advisors, with full implementation required by Jan. 1, 2018, so that was a bit of a surprise,” says Ross, executive managing director and head of product strategy and marketing with the investment service and solutions giant.
However, he’s quick to note other surprises might come, as the 1,000-plus page ruling has yet to be “digested” by the Chicago-based firm, and for that reason he’s reluctant to comment on matters not yet fully vetted.
It’s the kind of deep-breath, measured approach Envestnet can afford to take—one in stark contrast to some other industry players —since they’ve actively prepared for the rule for some time.
“We’ve been putting placeholders in our software queue, so we’re in a pretty good position to analyze the difference between the proposed rule and the final,” he shrugs when asked about how they’re proceeding. “I don’t think were scrambling by any means.”
The Best Interest Contract (BIC) exemption is another point of interest, Ross says. BIC allows firms to continue to set their own compensation models (including commissions) as long as a contract is signed with the client and the advisor acts in (what else) the best interest of the client.
Among other things, the final rule streamlines and simplifies BIC disclosure requirements and, according to Ross, “the language has been ‘softened,’ as I’ve seen it described.”
When asked about winners and losers from what was revealed Wednesday, he diplomatically demurs.
“There are no clear winners and losers, although we’ve recently observed an acceleration in the move from commission-based to fee-based compensation models, and this certainly continues that acceleration.”
To help advisory firms better position themselves to capitalize on opportunity in light of the rule, Ross suggests the following action items:
- Segment how advisors serve commission and fee clients, while maintaining a role as an essential advisor
- Inventory revenue streams to and from partners
- Review advisory solutions available
- Refresh commission to fee-based practice management materials
- Evaluate digital advice solutions for small accounts
- Consider value-added compared to fee sources
When asked if the rule really deserves the attention it’s receiving from the press and pundits both within and outside the industry, Ross concludes “It’s a big deal. It will require advisors to deliver advice in a fiduciary capacity to their clients, so it will change how the industry operates.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
