It is therefore most timely to have some guidance on the DOL rule and what it means for the sector. The author of this article is Tom Embrogno, who is principal of Docupace. That firm, headquartered in Los Angeles, is a provider of secure and federal and state law compliant electronic processing platforms for financial institutions and the wealth management industry. The views of the author aren’t necessarily shared in full by the editors of this news service but they are a welcome contribution, and readers are invited to respond. They should contact the editor at tom.burroughes@wealthbriefing.com

Since the Department of Labor first proposed the idea of making anyone who provides any kind of advice to the retirement industry act as a fiduciary there has been a tremendous amount of uncertainty and trepidation in the advisory profession. Among the biggest fears has been the possibility that advisors would no longer be able to recommend certain investment products, either because they paid a commission or were more expensive than other investments. 

Since the election, we’ve also had to deal with uncertainty about the future of the ruling itself. There has been considerable speculation in the press that President-elect Trump will either rescind the regulation outright or allow it to wither away by ordering his Administration not to defend it in court. And though the future of the DOL Fiduciary Rule is uncertain, it would be naïve at best to think that this will be the last regulatory intrusion. 

Waiting to see what’s going to happen around any regulation and then hoping you will be able to react fast enough to comply is really no way to do business. In the highly-regulated world of financial services a much more efficient and practical approach is to build a solid foundation of systems and processes that can put firms in position to adapt to any type of new rule that may emerge. 

With the issuance in late October of the DOL’s Initial Guidance, which offers clarification and answers to 34 questions around the Best Interest Contract Exemption, many of the uncertainties around what is permissible in terms of investment products have been answered, commissions and compensation. That’s a great start, but there are numerous other aspects of the Rule that still need clarification.  
As firms have begun to prepare for implementing the Fiduciary Rule, one thing that has become apparent is how far behind many are in terms of technology. For more than the last 20 years the industry has been struggling to adopt true digital processing, but continues for the most part to rely on home-grown, slow-moving legacy technology systems.

The majority of firms, particularly in the independent broker-dealer space, are still using labor-intensive manual processes for client onboarding. It’s an outdated approach that is tedious for the client, highly inefficient and has numerous potential points of failure, not to mention producing reams of disclosure forms and documentation. 

A much better, more compliance-friendly approach is to shake off the way things have always been done and make client onboarding digital. During the onboarding process the advisor is able to discuss risk tolerance, investment horizon, return objectives, tax restrictions, long-term goals and other life circumstances, everything they need to create a best interest assessment and understand the client’s best interests. At the same time the advisor is also able to capture and aggregate all the account data they need to get a clear picture of the client’s entire financial universe. This data is also used to satisfy the advisor’s many masters - SEC, FINRA, SROs, and state insurance regulators, to name a few - and comply with anti-money laundering and myriad other regulations. 

One of the goals of the DOL Rule is to increase transparency, which is much harder to do when everything is on paper. With digital, electronic communication delivery is instantaneous. With paper through the mail, it can be days or weeks before the report is in the client’s hands. The ideal situation is fully integrated platform. Even those who are attempting to act digitally today are often stuck with a bunch of silo systems. They have data in different places and those places don’t talk to each other, which adds another layer of frustration.

There is still a great deal that’s uncertain about the DOL Rule, but one thing we can all be sure of, this industry is not going to get any less complicated in the coming years. The time to prepare for that is now.
By establishing an electronic relationship with clients from Day One - getting them to opt in for e-signing and electronic distribution of documents will make complying with current and future regulations much simpler and will give clients information they need in a more accessible format.

Taking this kind of digital approach allows the advisor to not only comply with the DOL requirements, it helps the advisor get to know their client better, which in turn can lead to a deeper, longer-lasting and ultimately more profitable relationship.

Among the biggest lessons advisors can learn from this regulation and its ultimate imposition or cancellation is that the only certainty is change and that the old ways of doing things don’t work anymore. DOL has promised to issue additional guidance as the date for implementation gets closer. In those documents we should expect to see additional clarity around compensation structure and associated expenses as well as an explanation of where robo advice fits in. More information will definitely be welcome, but in the meantime, keep on getting ready. April 17 will be here before you know it.