This past Monday Celent’s Senior Analyst of Securities and Investments William Trout partnered with Seismic’s GM and VP of Financial Services Craig Dunham for a webinar on the DOL fiduciary rule, how firms are scrambling to meet the regulation’s requirements by April 2017, and the extent to which technology can help them efficiently validate, document, and educate, while lowering the operational costs of doing so.
Three keys from this highly informative and engaging webcast are as follows:
The true driver is cost
While increasing transparency and limiting underhanded product pushes are core objectives, reducing the cost of retirement investing is the rule’s true driver. This cost comes in three major forms, with the first being fees paid by investors, which, according to the Department of Labor, total $17B annually. Another form is any conflicted stream of revenue earned by advisors; such costs are now required to have a best interest contract exemption. And the third is opportunity by way of product offerings, as the average fee differential between active and passive U.S. mutual funds is 67 basis points, cited Trout.
With the rule, comes opportunity
With the necessity for training, education, document management, exemption compliance, and oversight, firms need to adopt new processes and models that balance evolving product offerings with technological innovation and integration, enhancing the overall wealth management experience. The gap created by the DOL rule forces firms to outsource non-core capabilities in order for advisors to deliver scalable and consistent services to investors. This transfer of certain operational functions increases the industry’s ecological value for all parties, as firms control costs, thus restoring margins, vendors earn revenue in the form of license and user fees, and investors gain access to a greater level of transparency, lower-cost products, stronger returns, and a better overall wealth advisory experience.
Firms must manage significant risks and mitigate business impacts
The major risks and losses associated with the rule come by way of litigation for not properly executing best interest contract exemptions, the negative commercial effect of reducing or replacing high-fee product offerings at a time of increased costs, thus squeezing margins further, and the inability to absorb additional compliance expenses, leading to widespread industry consolidation in order for firms to achieve scale. However, these factors directly correlate to certain technological capabilities that can bridge the gap between effective risk management and profitability. By leveraging a platform that automates and streamlines processes and centralizes collateral access and control, firms can determine and demonstrate impartial conduct standards through comparative data transparency, validating an investment recommendation; document the distribution and review of all exemption, disclosure and record-keeping requirements; and facilitate on-demand advisor training anytime, anywhere, on any device.
