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Fiduciary Fallout

April 6, 2016

Changes included in the final version seem to reflect sensibly on the volumes of comments DOL received during the feedback period.  Perhaps the greatest remaining area of uncertainty is, however, investor communications, i.e. what do BDs, RIAs, and advisors say to their clients, how do they say it, and when?  And while Chief Compliance Officers and their minions must provide counsel into this process, the authority for such messaging belongs in the hands of communications professionals.

Client questions like, “Haven’t you always made recommendations based on what’s in my best interests?” or “On what basis did you recommend the investments for my new IRA which you brought over from my old 401(k)?” or “What was wrong with the former ‘suitability’ standard that it had to be changed to this new fiduciary rule?” or “Have you ever recommended an investment with a higher cost to me when a lower-cost option was available?” or “How have you been compensated for your services up to this point?”

Every one of these questions is a relationship landmine as well as a potential professional liability.  Accordingly, the answers cannot be dismissed, delayed, delegated, or disregarded without an exposure to serious regulatory and/or legal consequences. As such, drafting and managing a comprehensive, accurate, non-defensive, and non-judgmental set of talking points or client-facing FAQs must be viewed by leadership as a form of crisis communication, subject to the same sensitivities as other business risks.

I predict that there will be an intrinsic preference for silence among CCOs and other executives.  Even advisors who typically understand that being proactive means being preemptive will be more inclined to keep their heads in the sand on this one.  However, as is typically the case when attempting to hide from uncomfortable realities, the proverbial ostrich gets slaughtered.

For certain, this is not going to be an easy task.  At the moment, there is ample time to discuss, plan, write and rewrite and rewrite and rewrite, and determine who will do the communicating, in what forms, and by when. And, if for some reason, clients do not make a fuss over the new rule, the anticipatory response will still have been time well-invested. But the time to get ahead of the curve is now, as the regulatory dust settles and the shock fades to only a dull pain.