Comply, Compete & Pave the Way


April 25, 2017

While the enforcement mechanisms associated with the DOL Fiduciary Rule are still in flux, it’s apparent that a fiduciary standard is inevitable with or without this particular set of regulations.

The Fiduciary Rule represents a significant shift in the way the wealth management industry operates with increasing transparency, client-centricity, and predictability. However, the DOL Rule does not represent a drastically new direction for financial services as a whole. The post-2008 financial crisis reforms began to create a consistent picture of where financial services was heading – financial institutions would no longer operate as free enterprise profit centres, the customer would have a stronger advocate in the Regulator, and financial institutions would not be shielded from real penalties.

The DOL Rule is simply the next logical step in that progression, which is why Wealth Management firms that plan to remain competitive cannot afford to simply implement one-off compliance measures. To comply, compete, and pave the way for the future, wealth firms must undertake some fundamental restructuring of their technology and processes in the face of the DOL Rule to become more transparent, consistent, and client-centric.

Under the DOL Rule, the burden of proof for fiduciary responsibility will lay squarely with the firm. According to Jeff Schwantz, Head of North America Advisor Solutions at Morningstar Inc., “It’s all about burden of proof. If the plaintiff’s lawyer says, ‘Why do you think this advice was in the best interest?’ a broker/dealer needs to be able to respond by walking through the entire process, detailing the interlocking control mechanisms that were used to determine, demonstrate, and document best interest.”

Compliance teams are tasked with ensuring their firm meets the new Fiduciary Standard and is protected from regulator scrutiny as well as client litigation. There is also a cross-functional component involved with implementing a solution that not only protects the firm from risk, but also minimizes the administrative burden for advisors and back-office staff. This becomes even more important in the light of the post-2008 exodus from the financial advisor profession, and the coming DOL Rule exodus, which will see reductions in compensation for many advisors. Here is where technology and automation become essential in building a compliance program that actually decreases costs, improves the advisor experience, and most importantly, elevates the client experience as well.

The DOL Rule takes effect at the very beginning of a client relationship, when the client gives the firm the necessary information to understand their background, goals, income level, and risk tolerance. This is also the phase where the advisor has the client engage with a BIC Exemption. However, the foundation for DOL compliance begins not in the client onboarding process itself, but in the technology infrastructure that supports the client onboarding process.

Read the full three-page article on how to comply, compete, and pave the way in the face of the DOL Fiduciary Rule here.