The DOL Fiduciary Standard: What it Means for the Financial Services Industry and Beyond

“Always act in the best interest of your client. Our profession should begin and end there.” So said one financial industry executive when speaking about the imminent approval of the DOL fiduciary standard.

This spring, the Department of Labor handed down its final ruling on fiduciary standard, and, to say the least, it has been met with mixed reactions. There are those who feel the rule puts undue burden on financial advisors and firms, those who intend or have already made inroads to contest the rule in Congress or the courts, and further those who applaud how it protects consumers and who think it does not go far enough.

Regardless of the reaction from the industry and consumers, one thing is clear: the ruling is reflective of broader trends that have been slowly taking over how companies interact with their customers and clients. This is true in financial services as much as in other sectors. Expectations have changed. Consumers now expect more. They demand transparency, value, and control.

In the simplest terms, the goal of the DOL fiduciary standard is to get advisors and their clients to share in a primary objective – helping clients to manage their finances and accumulate enough funds to last through a lengthy and fulfilling retirement.

Now, how does that connect with major market trends? The financial services industry, like many, is evolving – and the DOL ruling is just one example of how.

Transparency: As in other industries – cable television or purchasing a car, for example – consumers want to understand what they’re paying for and how much it will cost…upfront. Consumers are used to researching online, and know what to expect before they even walk into a store. The same is true in financial services. A flat fee or fee-based structure as set forth by the DOL ruling means that clients know what they’re paying for before they pay it. There are no surprises!

Flight to Value: When commodities are everywhere, we pay more for things that offer meaning – that add value to our lives. In financial services and within the advisor/client relationship, it’s not just about an investment product or the next hot IPO. It’s an advisor’s understanding of a client’s life circumstances, hopes, dreams and goals that truly make a difference. A great stock pick is no good to you if it doesn’t align with your long-term goals. Consumers expect that value, and moving toward a fee-based or flat-fee model ensures that the value remains in the relationship and not in the next hot product.

Customer Control: DIY has gone so mainstream that I no longer need to spell out the acronym. It’s gone from reserved for the crafty to nearly ubiquitous. If you watch a YouTube video or Google something, you can learn or teach yourself just about anything. Consumers have grown accustomed to this ownership. They’re in the driver’s seat and, as more and more elements of their lives and well-being fall under their responsibility, they now require this level of control. Moreover, it has created a more educated consumer. Consumers can validate their own conclusions with experts, as opposed to taking guidance at face value. It may have created more skepticism, and it certainly requires that experts earn consumer trust, but the end result is a consumer who is engaged in the process.

In truth, acting in the best interest of your client or customer should be the starting point for any business. After all, what’s a business without customers to purchase its products or services?


Photo credit: Carl Dwyer, Free Images

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