To DOL or not to DOL?

President Trump has ordered a review of the DOL rule, and it’s possible the rule will never be adopted.

This may once have been big news, but based on our conversations with clients, our expectation is that regardless of whether the DOL rule stays, most of the underlying principles will be adopted anyway — for both retirement and regular accounts.  

Few would argue against the aspiration of managing Investors assets to a fiduciary standard. More to the point, there’s less and less reason not to do so. At Smartleaf, we’re big on transparency and building practices on the foundation of documented work and value, so it won’t come as a surprise that we support what the DOL rule is trying to accomplish. Currently, the “robos” already meet this standard, even with small accounts. The path for most wealth management firms is not to become a robo, but to adopt the best of robo technology. This means:

• Questionnaires that establish risk appropriate targets and solicit appropriate customization criteria
• Centralized, highly automated rebalancing that ensures that every portfolio conforms to its customization parameters and follows the guidance of its assigned strategy

However, these are becoming commodity services, which will command commodity prices. Firms fear that they can’t charge high fees for routine profiling and simple ETF portfolios. And they’re right, they can’t. 

But that’s not really something to fear. Firms can still charge premium prices. The catch is they’ll have to earn it by providing premium services — customization, tax management, planning, etc. And to make the economics work, the premium services will have to be provided at low cost. Fortunately, it’s doable. Plain-vanilla ETF portfolios are not the only way to efficiently comply with the DOL rule.  At the end of the day, virtually every element of wealth management except advisor time can be automated. Cost management is really a matter of scaling up or down how much time investors spend with their advisors.  

So say Hello DOL! (or at least DOL-inspired practices) — It’s possible, it’s practical and it’s where the market's going, formal DOL rule adoption or not.

For more on this topic, check out Automated Rebalancing & Specialization.