Editors noteSince this was published, the White House has asked the U.S. Department of Labor (DOL) to consider revising or rescinding the regulations that define advice and guidance that lead to fiduciary status. This news article has more information on the status of the rule and Vanguard’s stance on the proposed regulatory change.

 

I have the privilege of meeting a lot of advisors in my role, and I have yet to meet one who didn’t get into this business to serve clients’ best interests.

The U.S. Department of Labor’s (DOL) recently unveiled fiduciary standard for certain investment advice has raised lots of questions from within our industry, including dedicated advisors like you. Vanguard is committed to working with you to understand the standard and to helping your practice thrive under it.

Knowing if you’re affected

With the final regulatory package from the DOL clocking in at a voluminous 1,023 pages, one could be forgiven for finding the prospect of deciphering it all more than a bit daunting. One of the first things many of you want to know is, What’s the impact on my business—does it apply?

To help answer this question, ask yourself three primary questions:

  1. Who are my clients?
  2. What do I talk about with clients?
  3. How do I get paid?

A recent webcast on the DOL rule addressed these questions. But here’s the short answer for now: If you provide investment recommendations for retirement plan accounts or IRAs, this rule is likely relevant to you. If the amount you are paid (or the amount that your affiliates earn) varies based on those investment recommendations, then the rule will likely require that you make some changes.

Determining the degree to which it applies for any given firm or advisor is, naturally, a bit more complicated.

We’re in this together

The good news is that we in the industry won’t be left completely to our own devices to figure all this out. The DOL acknowledges the complexity and has said it will provide additional guidance on the final rules where necessary.

Vanguard, of course, will continue to partner with advisors to help you optimize your practice. We also encourage you to consider Vanguard a partner committed to helping you succeed in an ever-changing regulatory environment.

Low-cost funds are just one factor that may make it easier for you to demonstrate your alignment with clients’ best interests. Our ETF strategic model portfolios can give your clients broad diversification in a package that’s easy to explain. And don’t forget our complimentary tools for your practice. For example, our Client Relationship Center™ provides resources that simplify tasks such as your client onboarding and take the guesswork out of coaching your clients to help them become more knowledgeable investors.

We’ll also, of course, continue to offer insights on the implications of the rule as we did in our recent webcast answering many of your most critical questions. Expect a growing number of related resources as we get further down the road toward the rule’s effective dates.

Our industry will get stronger

Bottom line: We’re still in the early stages.

However things unfold, it’s clear this rule will likely have a significant impact. In some respects, we may see it accelerate trends that have been playing out over the past few years, including more fee-based accounts, robo-advice, and greater demand for low-cost products. Clients will likely see increased service and transparency coupled with lower costs and less complexity, and it’s hard to argue with any of that.

While there are lots of unknowns just yet, we do know the industry is very adaptable, and we can count on seeing some innovative product and distribution solutions evolve over the next year. The way I see it, this is something to be excited about. As you and your firms continue to think through all this, we’re interested in being part of that conversation where we can help.

Now that the wait is over, it’s time to roll up our sleeves and collectively get to work.

 

Notes:

  • Vanguard ETF Shares are not redeemable with the issuing Fund other than in very large aggregations worth millions of dollars. Instead, investors must buy and sell Vanguard ETF Shares in the secondary market and hold those shares in a brokerage account. In doing so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive less than net asset value when selling.
  • All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss.