For major broker-dealers, the DOL fiduciary rule beckons sweeping changes in the way they do business. For independent advisors, it’s more of an opportunity than anything. Here’s why (hint: it’s about the role of alternative investments play).
Bracing for a Changing Landscape
The countdown to April 2017 has commission-based firms scrambling to prepare for a changing landscape. The first compliance deadline of the DOL fiduciary rule is April 10, 2017, and broker-dealers, advisors, and insurance firms who offer retirement services are already preparing for changes to their routines.
Whatever the outcome of the fiduciary rule, anyone who works in the industry can expect a variety of unexpected consequences. The key to navigating the new landscape is making the transition in as smooth a way as possible.
How are the big firms preparing?
Major policy changes are already underway at many of the major brokerage houses, as they take steps to move away from confusing compensation models and conflicted priorities.
Surprisingly, some are choosing to maintain a commission structure for retirement accounts. Others are making the switch to a thoroughly fee-based environment.
For independent advisors, the transformation is nothing short of radical, as well. Your business model, the approach you take with your clients and your ability to compete in an ever-widening playing field could represent a major paradigm shift.
Years ago, long before anyone saw the DOL fiduciary rule on the horizon; I decided to surrender my Series 7 license and walk away from my CFP® designation, no longer believing in the practices they represented. Over the course of 20 years I designed my own 5-step process called The Pathway Process™. After seeing tremendous results in our business I decided to teach other advisors how to get paid for their advice.
Knowing all of this; three important questions emerge:
- What changes can you make in your business model that will set you up to better serve your clients?
- How do you stand out in the crowd?
- How do you plan for business growth and sustainability?
Of course there isn’t a simple, all-purpose answer to open-ended questions like these, especially when they can determine the direction of your career and the success of your livelihood. But you should be aware that answers to these questions may just be found with alternative investments. Here’s how.
For many of the big players in the industry, the changes set in motion by the DOL fiduciary rule are already underway. One consequence of these changes is already affecting advisors as product distributors and broker-dealers have already reduced the number of products they’re making available to advisors. For advisors who have relied on commission-based products, some are already discovering those products are no longer available.
That’s just one good reason to consider offering alternative investments like life settlements and real estate to your clients. But alternatives aren’t just a ‘Plan B’ for advisors who can’t get their hands on traditional investment products any longer. Alternative investments come with their own set of extremely viable benefits for investors and advisors alike.
- Alternative investments can correlate indirectly with traditional investments.
Retirement investors are particularly vulnerable to the high volatility of the stock market and 401Ks, which means an equities-based retirement portfolio often isn’t going to pan out the way your clients may have been told. Alternatives can reduce market risk because they don’t move with traditional investments. They have return profiles that are different from typical investment profiles that take an equities-based approach.
- Alternatives offer unique opportunities (with potentially large upsides).
Since alternatives are often less regulated than traditional investments, some are only available to accredited investors. But there are plenty of opportunities for non-accredited investors as well. Alternative investments open up options for a wide range of strategies that investors who stick to stocks and bonds just don’t have. There’s your unique opportunity. Alternatives offer the kind of opportunities many investors seek and wish to see in their portfolios: an opportunity that offers much bigger potential rewards.
- Alternatives may help you distinguish yourself in the industry and stand out in a crowd of competitors.
Advisors are leaving large wirehouse employers and broker-dealers to venture out on their own entrepreneurial adventures. As the competition grows, independent advisors need new ways to stand out. And the competition isn’t just from the other independent financial advisors out there. The new crop of robo-advisors increases the pressure on the industry as well.
To attract more of your perfect clients, offer a strong and clear vision of the value you bring to them through your practice. Alternatives are not even an option at some of the large brokerage firms. And robo-advisors? Forget about it!
Even the guy down the street who hung a shingle and who offers financial advising services may not be offering alternatives.
- They offer a great reason to reach out and fire up new conversations with your clients.
An interconnected world means communication norms have shifted dramatically. Clients desire interaction with you. They want dialogue with a trusted advisor. Alternative investments are, for most clients, a new direction. You’ll find that, presented in a clear and concise way, alternatives will make a lot of sense to many of your clients.
By offering research-backed professional advice to your clients on alternative investments, you not only open up the door to new possibilities, you also grow your relationships by establishing yourself as their trusted advisor. And that, in the end, is the key to better service, business growth, and sustainability.
Every Year at The Summit for Prosperity Advisors event, we bring in the top industry experts on alternative investments to share with you the very latest opportunities available to both you and your clients.