February 2 by Cory Haynes

The remarkable stock market rally of 2017 – in which the Standard & Poor’s 500-stock index shot up 22 % and the Dow Jones Industrial Average jumped 25 % – has boosted the nation’s retirement accounts to record heights, making the painful 2008-2009 stock market crash feel like ancient history. And that fervor has not faded with the new year.

That feeling of optimism could spread as more Americans receive their year-end retirement account statements in the mail and online this month, providing concrete evidence of newfound paper wealth.

Perception is reality

Or, rather, close to it. That’s how we’re wired as human beings. Our notion of the truth and what we think is the truth can get rather blurred. Although many are seeing growth in the plans on paper, workers say they plan to rely less upon Social Security (30%) than the current generation of retirees (51%), and expected reliance on Social Security declines among those who have access to a 401(k) plan (26% vs 37% without access) and among consistent savers (23% vs 35% who aren’t consistent savers), according to Wells Fargo’s 2017 Retirement Study.



The good news is, when asked what they would do with extra money from a tax cut, most people seemed to think of extra tax money as a means of dealing responsibly with existing financial obligations Thirty-somethings were more likely to pay down debt (52% vs 38% overall.)


Fiduciary Requirements

Most workers have their money in defined contribution plans, 401k and 403b and get advised by a retirement advisor. However, the new Fiduciary requirements by the Department of Labor has stated that retirement advisors must be fiduciaries, not just advisors. The Department of Labor’s definition of a fiduciary demands that advisors act in the best interests of their clients, and to put their clients’ interests above their own. It leaves no room for advisors to conceal any potential conflict of interest, and states that all fees and commissions must be clearly disclosed in dollar form to clients. The traditional advisor only has a suitability requirement, but fiduciary needs to have the best interest of the client. Therefore, as a fiduciary they have a lot more skin in the game.

The Department of Labor (DOL) Fiduciary Rule is a new ruling, originally scheduled to be phased in April 10, 2017 – January 1, 2018, but delayed until June 9, 2017, including a transition period for the application of certain exemptions to the rule extending through January 1, 2018. Full implementation of all elements of the rule has been pushed back to July 1, 2019. Needless to say, only a few firms have moved ahead and adopted the fiduciary rule in order to differentiate themselves in offering better protections and increasing their brand perception.

Early adopters are leading the market with a value proposition that their advisors, now fiduciaries, are obligated to advise with the client’s best interest in mind, which is a great way to take a regulatory burden and transform it into a differentiation value proposition, especially since the last decade many firms were under a shadow of by mistrust and greed.

Fiduciary Ruling

The fiduciary ruling also provides a great opportunity for investment firms to sell more of their funds to retirement consultants that are advising on plans. As Qualified Plan Sponsors have a fiduciary role as well, the best way to limit exposure and lower overall plan expenses is to narrow down the fund managers and fund options for their participants. This in turn, leads plan consultants and advisors to look for fund managers that offer broad, deep and cheap funds with adjustable share classes with commensurate lower fees based on the plan size and complexity. Plan Sponsors with the fiduciary burden, no longer want a list of 40 funds from 6 different fund firms, they would rather offer 10 funds from 1 or 2 firms, thus increasing competition among fund managers to entice third party retirement advisors to recommend and sell their funds to public and private defined contribution plans. It comes down to shelf space, and getting their products on the increasingly shrinking platform. Fund managers that are easy to do business with, offer omni-channel engagement, and flexible pricing will win the day.

Apttus Intelligent Financial Services, part of the Intelligent Middle Office Platform™, offers a digital engagement platform to enable advisors to self-select the funds with the assistance of an intelligent agent to ensure they are configuring and pricing proposals in the best interest of the plan sponsors’ participants, based on their plan size, risk tolerance, and overall plan design. This is streamlining the sales process and increasing sales by 25% on average.

So let’s all enjoy the stock market rise, but remember, what goes up must come down – therefore, planning is critical, and working with a fiduciary that has your best interest is mind is golden.

Learn more about financial services in the age of regulation. Download our whitepaper today.


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