Leading custodians warned fee-only financial advisers to figure out what differentiates their services from the competition because pretty soon everyone is going to be touting the fiduciary label.
With the Labor Department's conflict-of-interest rule requiring all retirement advice be provided in a client's best interest, and the Securities and Exchange Commission
tentatively set to issue its own fiduciary rule next year for all financial advice, prospects are going to hear from every type of adviser that they act as fiduciaries.
“Being a fiduciary used to differentiate you, but now everyone is going to use the word fiduciary,” said Bernie Clark, executive vice president of Schwab Advisor Services, at the spring National Association of Personal Financial Advisors conference in Phoenix on Thursday.
(More: Coverage of the DOL fiduciary rule from every angle)
Registered investment advisers already operate as fiduciaries, while brokers work under a less-strict standard that requires recommending suitable investments.
Advisers should explain to clients and prospects that they have been working in clients' best interests for decades already, said Tom Nally, president of TD Ameritrade Institutional, who was on the panel with Mr. Clark and Bob Oros, head of the RIA segment of Fidelity Clearing and Custody.
“Get out there with the message, RIAs: Fiduciaries since the 1940s,” he said.
In addition, advisers need to examine the value they are providing clients and make sure they are charging for those services, Mr. Nally said.
It may no longer make sense to charge a fee based on a percentage of assets under management when the adviser's value to the client is really the role of financial life coach, helping them with estate planning, college savings and other priorities, he said.
One method he praised was
charging a fee based on total net worth, not just a fee on the assets managed — for example, charge 25 basis points on the client's $5 million net worth, as opposed to 100 basis points on the $1 million of investments the adviser oversees.
Mr. Oros told the approximately 350 fee-only advisers at the conference to make sure they pay attention to the changes they will need to make to their practices to comply with the DOL fiduciary rule.
The rule begins to take effect next April, with the full force of the rule in effect Jan. 1, 2018.
“It will have a profound impact on some firms,” Mr. Oros said. “Don't let April 2017 sneak up on you.”
