Addressing Game Changers to Your Business: DOL Readiness

Transcription

1 Addressing Game Changers to Your Business: DOL Readiness

2 Presenters: Peter Bielan, Principal Kehrer Bielan Research & Consulting Catherine Bonneau, President & CEO Cetera Financial Institutions Kevin Larson, Chief Compliance Officer Cetera Financial Institutions Cetera Financial Institutions is a marketing name of Cetera Investment Services LLC, member FINRA/SIPC.

3 The Potential Impact of the DOL Fiduciary Rule

4 The Potential Impact of the DOL Fiduciary Rule Better Justify Fees Differentiate Advice Financial Planning Holistic Client View

5 Characteristics of Clients with a Financial Plan

6 Generational Composition of Households with a Written Financial Plan Millennials Generation X Younger Boomers Older Boomers Silent Generation Greatest Generation Average US Household 2% 4% 7% 10% 11% 13% 15% 16% 19% 18% 19% 25% 25% Share of households in cohort with written financial plan Share of US households in generational cohort The New Importance of Financial Planning Part 1 - Page 4

7 Financial Assets of Households with a Written Financial Plan 46% 33% 12% 15% 10% 5% 6% 13% 18% 15% 5% 18% 1% 2% 0% 1% All US households Household has written financial plan The New Importance of Financial Planning Part 1 - Page 5

8 Household s Primary Type of Financial Institution Bank Credit Union 21% 22% 58% 70% Financial Planning Company 2% 11% Full-Service Stockbrokerage Firm 6% 3% Mutual Fund Company 2% 1% Discount Stockbrokerage Firm Insurance Company 1% 1% 0% 1% Household has written financial plan All US households The New Importance of Financial Planning Part 1 - Page 6

9 Household Agrees or Mostly Agrees 79% 71% 36% 35% I prefer to consult with a specialist when making financial decisions All US households I would be willing to pay for professional financial advice Household has written financial plan The New Importance of Financial Planning Part 1 - Page 9

10 How Having a Financial Plan Impacts Client Loyalty

11 Mean % of Household's Savings and Investments in Banks and Credit Unions 59% 63% 34% 36% Household has savings or investments Household has written financial plan Household obtained plan from independent The New Importance of Financial Planning Part 2: Impact on Client Loyalty and Share of Wallet - Page 5 Household obtained plan from bank or credit union

12 Households That Would Not Consider Switching Primary Depository 41% 40% 45% 29% Household has primary bank or credit union Household has written financial plan Household obtained plan from independent Household obtained plan from bank or credit union The New Importance of Financial Planning Part 2: Impact on Client Loyalty and Share of Wallet - Page 6

13 Households That Have a Great Deal of Trust in Bank and Credit Union Advisors 49% 16% 11% 12% 19% 26% Household Trusts Bank Advisors a Great Deal Household Trusts Credit Union Advisors a Great Deal All US households Household has written financial plan Household obtained plan from bank or credit union The New Importance of Financial Planning Part 2: Impact on Client Loyalty and Share of Wallet - Page 8

14 How Financial Plans Impact Business

15 Impact of Planning Activity on Advisor Productivity $408,621 $345,127 $341,463 Average Annual Gross Revenue per Advisor Fewer than 1 Plan per Month 1 Plan per Month 2 or More Plans per Month Average Number of Plans Completed per Advisor The New Importance of Financial Planning Part 3: Impact on the Firm (coming soon)

16 Impact of Planning Activity on Advisor s Advisory Business $86,103 $37,888 $36,645 Average Annual Advisory Revenue per Advisor Fewer than 1 Plan per Month 1 Plan per Month 2 or More Plans per Month Average Number of Plans Completed per Advisor The New Importance of Financial Planning Part 3: Impact on the Firm (coming soon)

17 Impact of Planning Activity on Deposit Revenue Penetration $2,683 $1,532 $1,743 Annual Investment Services Revenue per Million of Institution's Consumer Deposits Fewer than 1 Plan per Month 1 Plan per Month 2 or More Plans per Month Average Number of Plans Completed per Advisor The New Importance of Financial Planning Part 3: Impact on the Firm (coming soon)

18 Now Available! ceterafinancialinstitutions.com/welcome > Thought Leadership

19 DOL Timeline Originally proposed in 2010 as a result of the Dodd-Frank bill. Due to industry concerns and lack of government support, the proposal was initially rejected. In 2015, with strong support from the White House, DOL reproposed this rule. April 15, 2015 DOL releases rule proposal July 20, 2015 comment period ends August th in-person hearings September 11, 2015 DOLs deadline for supplemental comments January 28, 2016 final rule sent to the Office of Management and Budget, which has up to 90 days to approve May 20, 2016 deadline to beat end of Obama Administration January 20, 2017 end of Obama Administration

20 DOL Fiduciary Rule (proposed) Represents a fundamental rethinking of the way retirement advice is delivered as most interactions between a client and a representative will now fall into the DOL definition of a fiduciary. Covers all retirement plans including IRAs Applies to any situation in which advice is rendered and the representative or broker dealer is receiving any form of a commission or revenue sharing from a sponsor Provides relief through the Best Interest Contract Exemption (BICE) BICE is required up-front and prior to solicitation. The final rule may allow for signing at a later date but the standard is applied from the first interaction. No grandfathering of prior sales, BICE required prior to providing advice and receiving revenue on prior sales. Revenue sharing includes 12B-1 fees, events such as lunches/seminars/due diligence trips that a sponsor supports.

21 Critical Points Proposed rule does not apply to investment advisory relationships or advice received from a robo/digital advisor assuming all conflicts of interest have been eliminated and any revenue streams are levelized. Consumer experience between qualified and nonqualifed products would be greatly different as this proposal doesn t include nonqualified products. Revenue streams for retirement plans, including IRAs, will be altered so it is best to review your 2015 revenues to understand the future impact. Sales practices of the representatives, marketing materials, and seminars specific to Rollover IRAs will have to adapt to the new regulations.

22 Critical Points (cont d) The use of planning/financial plans as a foundation for client interactions will provide a process and documentation of acting in the best interests of the client. Professional liability expands if a representative fails to act in the best interest. Dispute resolution will no longer be the arbitration process but rather a provision class action litigation. Some key products that the BICE requirement would apply to include mutual funds, variable annuities, indexed annuities, and certificate of deposits.

23 BICE Requirements DISCLOSURES Public website of all investments sold in last 365 days or currently available Disclose 1-, 5- and 10-year total costs Year-end report by asset/transaction OTHER CONDITIONS Range of investments Broad range enabling Best Interest Limited range requires notice Non-traded REITs, BDCs not currently included One-time notice to DOL of reliance on BICE Recordkeeping and access DOL data request

24 BICE Requirements Type of Investment FINANCIAL INSTITUTION ABC WEB SITE DISCLOSURE MODEL FORM Provider name, subtype Charge to investor TRANSACTIONS Comp to firm Comp to adviser Charge to investor ONGOING Comp to firm Comp to adviser Affiliate Special rules Non-Prop Mutual Fund (Load Fund) XYZ MF Large Cap Fund Class A Class B Class C X% sales load as applicable X% dealer concession X% of transactio nal fee Extent considered in annual bonus X% expense ratio X% 12b-1 fee, revenue sharing (paid by fund/ affiliate) X% of ongoing fees Extent considered in annual bonus N/A Breakpoints (as applicable) CDSC (as applicable)

25 Impact Considerations Investor Traditional engagement will no longer exist Small Investor likely to be relegated to digital engagement only Large Investor likely will be forced into an advisory relationship Product Manufacturer Passive/Unmanaged assets at risk as advisors forgo BICE for Fee based business Fee compression likely to fuel NextGen product Challenges traditional to promoting a digital based distribution model Advisor Investment Management and or product selection no longer a viable business Crystalizing the value of Planning and Advice necessary to rationalize price Accelerates advisor retirement and NextGen advisor business model

26 Duty of Care Duty of Loyalty Fair Fees

27 SUPERVISION Fiduciary Customer Experience Assurance Protection Control Reliability Income Understanding Continuity Client Needs Advisor Solutions Estates Trust Rev. & Irrev. Advisory Brokerage Direct Annuities Insurance SUPERVISION CETERA Advisor Discretion Suitability Trust IMA Cetera RIA Performance Reporting Allocation Model Alignment and Systems Interface TRUST Trust Administration P&I Accounting Trust IMA RIA Performance Reporting SUPERVISION SUPERVISION

28 Training Opportunities & Educational Events ACE Training Program Scripts/Role Play Worksheets Client Communications

29 Training Opportunities & Educational Events Wealth Management Universities Certified Wealth Strategist (CWS ) Program Certified Retirement Counselor (CRC ) Program Accredited Investment Fiduciary (AIF ) Designation Program Wealth Management Summit MoneyGuide Suite Course of Courses

30 Tools & Resources DOL Impact Report MoneyGuidePro Connect2Clients RightBRIDGE Identify Specific Ideas Product & Service Suggestions Digital Advice Platform

31 Digital Advice Engagement & Platform Planning Tools (mymoneyguide ) Risk/Goal-Based Questionnaire Goal-Based Customized Portfolio Allocation Investment Strategy Execution Automation and Passive Investing Ongoing Monitoring and Rebalancing Client Access (iconnect2invest )

32 Q & A