New DOL Rule – The Future of Investment Management Meets the Future of Dividend Growth?
May 25, 2016
The recent DOL rule seeking to remove conflicts of interest in the investment advisory space has been causing controversy and concern among financial advisors. The DOL rule also looks to redefine what might be considered investment advice and fiduciary responsibility. Though as of now the DOL rule only applies to retirement assets, it takes little thought to imagine the rule expanding to other investment accounts in the years to come. As a result, many in the financial services industry wonder how this rule will reshape the way financial advisors and investment management firms will be affected in the service of their clients going forward.
One of the clauses causing issue is the ‘Best Interest Contract Exemption’. The DOL is looking to require advisors to select investment products in their clients’ best interests, requiring justification and education to be provided regarding why certain investment products were chosen. This can be complicated if not concerning to many investment advisors who may be worrying how such a justification might be determined, especially across different mutual funds and share classes.
One solution to possibly consider is a simple one: Exchange-traded Funds (ETFs). ETFs may provide an easy way for fee-based advisors to potentially fulfill their fiduciary responsibility to their clients while justifying investment recommendations. ETFs could provide a low cost solution to what can be a sophisticated investment strategy or solution, like accessing expected dividend growth. ETFs generally have a low cost structure relative to mutual funds and do not come with typical load costs or ranging share classes that may be a problem in the future.
The lasting effects of the DOL rule are currently unknown, but as the investment management industry moves forward, adapting to and staying ahead of changes will play a large part in determining the financial advisory firms that thrive. Clients will continue to want to diversify assets like institutions do across sectors, countries, asset classes, factors and strategies – all possibilities with ETF investing. The innovative Reality Shares DIVS ETF (Ticker: DIVY), for example, seeks to isolate and access future dividend growth rates, providing access to an institutional-grade strategy that has historically offered low volatility and a lower correlation to the broad market. Other funds like the Reality Shares DIVCON Dividend Defender ETF (Ticker: DFND) offer a long/short hedging strategy with institutional-grade stock selection based on the DIVCON dividend health ratings of large cap companies. These and the other ETFs in the innovative Reality Shares suite of products offer advisors the potential to access future dividend growth without the fiduciary risks associated with other investment vehicles. These ETFs may also offer financial advisors the peace of mind knowing that the investment products selected fulfill the new DOL rule.
Consider dividend growth ETFs as a possible lower cost client solution towards fiduciary responsibility — read more about the Reality Shares suite of ETFs.
DIVY Expense Ratio: 0.85%; LEAD Expense Ratio: 0.43%; DFND Expense Ratio: 0.95%; GARD Expense Ratio: 1.05% (Gross)/0.95% (Net with a Contractual Fee Waiver through February 28, 2017).