The majority of small investors currently have their main retirement savings in defined contribution accounts. A common issue for those investors is the only education they receive is from plan consultants who don’t have a fiduciary status. Additionally, any advice small investors do receive in regards to topics that include rolling over an IRA fails to dig deep into specific issues like tax considerations.
Understanding the Impact of the DOL Conflicts of Interest Rule
This rule will have a significant impact on DC plan advisors. The DOL rule will make it possible for advisors to act as fiduciaries. What that means is it will be possible for advisors to innovate and provide what’s best for plan participants. Specifically, advisors will be able to guide small investors towards specific investments that are cost-effective and offer what an investor needs.
Another benefit of this rule is it will make it far easier for individuals to get the advice they need in regards to IRA rollovers. Instead of needing to somewhat guess with this decision, defined contribution plan participants will be able to get the comprehensive and objective advice they deserve.
During the last decade, the financial planning industry has seen a shift from focusing on products to emphasizing advice. The introduction of the DOL Conflicts of Interest Rule will continue to move the industry towards making fiduciary investment advice the top priority.
Additional Takeaways for Financial Advisors
While there are quite a few reasons for financial advisors to feel positive about this new rule, it’s important for certified financial planners to understand the full spectrum of effects the rule will have on the industry. Specifically, it’s very likely that the impact of this rule will result in greater competition among advisors.
There’s a good chance that the increased competition spurred by this rule will put downward pressure on the general fees associated with trained financial advisors. However, that doesn’t have to create a major pitfall for advisors. Instead, it can act as an opportunity. The way it can create opportunity is by giving advisors a clear and compelling reason to explore different ways to render their services.
All signs point towards this rule leading to more people becoming aware and interested in getting guidance from professional advisors. This overall trend should result in a larger number of smaller investors who are making the best decisions about managing their money and planning for retirement.
Since the overall impact of this rule should be positive for advisors, the best step for them to take is to spend some time reviewing the specifics of defined contribution accounts and then think about where an advisor can use their specialized knowledge to provide the most value.