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Nearly Half of US High-Net-Worth Clients Unaware of DOL Ruling

A survey of hundreds of HNW investors showed that only 12% were 'very familiar' with changes, and a huge 45% were wholly unaware; wealth managers have some work to do

The United States Department of Labor announced its final version of the new fiduciary rule over six months ago that outlines how wealth managers must protect consumers’ savings, particularly by targeting conflicts of interest in how retirement accounts are managed.

The DOL rule joined the growing ranks of high-profile regulation to protect investors in a whole host of countries in recent years, including the Markets in Financial Instruments Directive (MiFID) in the EU, Retail Distribution Review (RDR) in the UK, and Future of Financial Advice (FoFA) in Australia among others.

Ahead of a full compliance deadline set for January 1, 2018, questions remain for wirehouses and other firms working with high-net-worth (HNW) individuals, even though the DOL rule will be felt most acutely by small providers and clients with lower retirement account balances. As firms await additional guidance in the coming months, they should be considering the cost of compliance and ensuring the new measures they must enact – to show that advisors really are putting their client first – do not harm the client experience. Fortunately, from the client’s perspective, this risk appears to be well-contained at present.

Scant Awareness

A CEB survey of hundreds of US-based HNW individuals in the wake of the DOL’s final ruling found that the large majority were unacquainted with it. Only 12% of HNW respondents said they were “very familiar” with the new regulation on investment advice standards. A whopping 45% of those surveyed reported that they were entirely unfamiliar with the changes.

Even among HNW individuals who said they were at least slightly familiar with DOL’s mandate, less than 13% anticipated it would make either a moderate or significant difference to the standard of advice they currently receive.

And, indeed, the regulation might not be all that relevant to many HNW individuals. Trust accounts, for example, have long required the fiduciary standard. However, many HNW clients also have assets in individual retirement accounts in order to take full advantage of tax-deferred savings.

Advisors could be left wearing multiple hats in dealing with the same client in the same interaction. Needless to say, confusion could reign.

The trick is for wealth management firms is to invest in helping advisors provide strong and clear client communication to protect a trusted advisor relationship and educate clients on the changes that are, ultimately, intended to benefit them. Three steps will help.

  1. Clearly and carefully communicate new measures the firm is taking with clients to meet a fiduciary standard.

  2. Engage interested clients in a dialogue well in advance of deadlines for required disclosures and signatures.

  3. Separate educational conversations and articulate the value a client is getting for the fees they pay at a different time than when going through compliance paperwork and disclosures.

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