Regulation & Compliance

Traversing a Brand New Regulatory Landscape

The impact of DOL and how to turn change into opportunity

By Jason L Smith

Mr. Smith is the founder of the JL Smith Group, established in 1995, as well as two national financial planning organizations, Clarity 2 Prosperity Mastermind Group and Prosperity Capital Advisors, a SEC Registered Investment Advisory firm. Connect with him by (888) 240-1923 or e-mail:

With the passing of the U.S. Department of Labor’s fiduciary ruling in April of this year, the real work has begun for the financial services industry.

All walks of life – from advisors to marketing organizations to carriers, and everyone in between – are impacted by the ruling, but how individuals as well as companies are choosing to address these changes to their livelihood today could well shape their future.

In its ruling, the Labor Department pointed to the $17 billion it claims investors waste annually in excessive advisory fees as a major reason for this legislation.

The 1,023-page ruling took six years to finalize and is the biggest regulatory change to retirement accounts since 1974’s landmark Employee Retirement Income Security Act (ERISA), the federal law that oversees tax-advantaged retirement programs.

The DOL’s ruling brings a fiduciary standard to the $25 trillion retirement services market. Gone is the “suitability” standard that many advisors have worked under and in its place will be guidance that places the best interest of the client before advisor profits. This shift, from a transactional to a comprehensive planning approach will be drastic for many.

Seismic Changes

While seismic changes are on the horizon for the industry, the outcome doesn’t have to be a negative one. In fact, the net positive effect, once advisors and other industry entities have made the jump to a fiduciary standard, could far outweigh the short-term negatives. But, there’s no way to sugarcoat it – the short term could be a bumpy ride.

The first phase of the DOL fiduciary rule will take effect next April with full implementation targeted for January 1, 2018. Among the most pressing issues is the immense shift to a fiduciary standard when advisors are providing guidance on retirement accounts. The types of accounts covered here include 401(k) plan assets, individual retirement accounts, or other qualified assets saved for retirement. While a disruption is inevitable, the changes are manageable if advisors and companies are willing to change.

Currently, we are in a time of great anticipation – gearing up and preparing for what’s to come. For many, it’s a time of fear and uncertainty. For others, it’s an opportunity to gain new skills or to compete and provide guidance on a level playing field where advisors with a holistic approach are welcome.

Since the final ruling was announced in April, I have been meeting with industry experts, including employee benefits law specialists, DOL regulators and advisors. During that time, I’ve also met with people at RIAs, FMOs and carriers to better understand how the different entities and organizations are adapting to and implementing the DOL changes.

In the following examples, I explain what those within the industry are doing, or should do, in order to comply with this new world order. Moving forward, survival in the financial services industry will not be a whether or not you had “good intentions” with the advice your provided, it will be whether or not your fully adapted to the new rules and standards to provide advice in your client’s best interest. Anything less will not be acceptable come April 2017.


For advisors, the change is real. Whether you currently operate under a commission-based model, a fee-based one, or a hybrid of the two, the change is eminent.

Changes to compensation structures and the sales process needed to adapt to new standards may be significant. While this may create some growing pains, it will also create opportunities to deliver more value to your clients, along with new revenue opportunities. Advisors can survive if they are willing to do the work.

I don’t expect that work to include having advisors start building 80-page financial plans with complicated software or having to run out and get their CFP® designation. I don’t think that’s realistic.

What’s going to be needed is a structured approach for gathering and documenting client data, analyzing their current financial situation along with future financial goals, and deliver recommendations that are truly in their best interest. I don’t believe “best interest” is accomplished by grouping all of their assets into one plan with one purpose, but rather comes from segmenting their accumulated assets for retirement by purpose and time horizon.

Money needed sooner than later should not be treated the same if an advisor is truly advising a client in their best interest. Essentially, advisors will need to take a more holistic approach to planning for the client’s future retirement, rather than the product-selling approach many advisors may be accustomed to.

What advisors are going to have to do between now and the April deadline is to educate themselves on the holistic planning process and adapt accordingly.

I would recommend seeking out a training program on how to specifically take a comprehensive view when working with clients while also focusing on how to adhere to the best interest standard when advising. This will not only provide clarity on how to holistically advise but will also help to simplify how to implement a fiduciary friendly planning process. But, be aware: jumping into a process that has been created on the fly in response to this legislation could create major problems for the advisor.

Gone is the “suitability” standard that many advisors have worked under and in its place will be guidance that places the best interest of the client before advisor profits

A compliance-driven process won’t be as effective as a planning-driven process, so I would recommend finding a training from a financial institution with a process that adheres to the DOL standards of doing business already in place that has been field-tested. This approach may be a new way of thinking for some advisors, but it will be the price of doing business in the future.

Some Good News

Last month a Nationwide Retirement Institute survey revealed that most advisors, 87 percent, are “considering changes to their business model.”

That’s great news for the industry and for the consumers that such an overwhelming number of advisors are ready to roll up their sleeves and make the necessary changes. According to the same survey, “43 percent may plan to expand services offered to more holistic planning and 26 percent may plan to focus on non-qualified accounts.”

If people want to survive in financial services, it’s imperative they make that shift from a transaction-based business model to more of a service-oriented model.

Where the industry needs to do a better job for advisors is in educating them on what’s taking place, what needs to be done, how to get that done, and what the timelines are to reach those goals. The Nationwide study found that only 42 percent of advisors “say they are aware of their firm’s timeline for implementation or what training or support the firm will provide, while only a third (33 percent) are aware of their firm’s new compliance procedures.”

Furthermore, only 23 percent of advisors told the survey that they are aware of their firms’ plans with respect to adoption of the BICE while 78 percent “identified the BICE as one of the greatest areas of impact to their business.” This puts too many advisors who are willing to make the necessary changes behind the eight-ball and further illustrates the dire need for advisors to seek out specialized training to get a plan in place for implementing new best interest standards.

In addition to learning how to comply with these best interest standards, there are other areas of business an advisor should review to make changes that strengthen his or her practice and further adapt to this legislation:

  • Incentives
    The DOL has looked unfavorably on various kinds of bonuses, trips and incentives. When advisors partner with an organization, they must make sure any incentives being promised fit within the latitude of the DOL and don’t infringe on the best interest of the client. When in these scenarios, advisors need to ask the question, “Is this recommendation best for the client? Does this recommendation avoid any and all conflicts of interest?” If an advisor is receiving “soft dollars” or any additional compensation for recommendations provided, this could be in violation of the DOL rule.
  • Diversify
    The world will be different for insurance agents and investment advisors alike. To adapt and evolve in this new environment, individuals and organizations should look at diversifying what they offer. One example is to add a tax practice within your advisory firm. It can become an additional revenue stream that complements the financial services work you already perform. Consider it a separate profit line that works independently of the financial business.
    As an added bonus, a tax practice is not subject to the regulatory oversight of the DOL ruling. Charging planning fees could be another opportunity for new or expanded revenue. If an advisor is taking a client through a holistic planning process, more expertise, time and resources would be required, which makes charging a fee for the plan reasonable.
  • Securities Licensing
    For insurance-only agents, it might be time for you to consider getting your Series 65 license. I realize many fought (and won) against securitization when 151A was struck down, but times are changing. The DOL ruling saw to that. This allows you to be a more comprehensive, more holistic advisor, one who can look at and advise on the totality of a client’s needs, not simply sell a product from the handful that your company offers.
  • The Industry at Large
    Advisors are not the only entity affected by the DOL ruling. FMOs, RIAs, broker-dealers and carriers are all also being impacted by the changes. Some groups are banking on a win in court while others are looking at rapid adoption of fiduciary standards. There are some significant misconceptions on the RIA side or groups who have previously upheld financial planning standards that, since they’re already a fiduciary, they’re good and don’t need to adapt to the new rule.However, it is a mistake to believe they can continue doing business as usual. There are major changes to policies, procedures and documentation requirements, and just like advisors, I anticipate those organizations who fall short or are scrambling to improvise will not survive, leaving the advisors depending on their leadership and guidance with even greater challenges.


There is a huge opportunity for the industry post-April 2017. For advisors who can weather the storm and transition from a transactional-based business to a holistic model, the opportunities will be immense.

The demographics are in our industry’s favor. We have 76 million baby boomers who have or will hit retirement age as well as many of the advisors unwilling to change who will be phasing out. That leaves a huge hole to fill for advisors who have strong, comprehensive planning practices. ◊



The contents of this article include the personal opinions and projections of Jason L Smith, and are subject to change and are for informational purposes only.