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Technology > Marketing Technology

Technology to the rescue for fiduciary rule compliance

By Ed McCarthy

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As financial services firms develop their responses to the Department of Labor’s fiduciary rule, technology likely will play a large role in the new paradigm.

Steve Winks, founder of Richmond, Virginia-based PCT Research and Consulting, says that firms can’t provide “continuous, comprehensive counsel” without technology. “If you’ve got 500 clients and you’re monitoring risk-return, tax efficiency, liquidity, cost structure and other technical requirements and you do it in real time, that’s beyond the human capability of reasoning,” he says.

Understand Your Client

Some post-ruling tech trends are becoming discernible. The fiduciary rule requires advisory firms to move beyond knowing their clients to fully understanding their clients, says Kevin Knull, CFP, president of MoneyGuidePro® developers PIEtech Inc. in Powhatan, Virginia. He notes that under the best interest contract exemption rule, advisors need to understand the client’s “full financial circumstances, risks and needs,” and it’s no longer acceptable to sell a product without that in-depth knowledge.

Knull believes some firms are overlooking the requirement to establish that the client is invested in their (the client’s) best interest before the firm can render advice. Determining that status requires technology, he says: “Just because of the amount of time it takes to uncover all of that information and in particular to standardize the process, you really need to leverage some sort of technology in order to be able to do so.”

In response to that need PIEtech has developed the Best Interest Scout software to help firms better understand their clients in what Knull calls the “discovery phase.” The system, which will be sold to firms only, not individual advisors, uses online questions to guide clients through the process of entering the relevant information. PIETech provides instructional videos and live chat support during the data entry process if users need assistance. Data entered into Scout flows directly to MoneyGuidePro, although Scout buyers are not required to use MoneyGuidePro.

Tracking the Details

Customer relationship management (CRM) software will take on added importance. Rohit Mahna, general manager, financial services with CRM-developers Salesforce.com Inc. in San Francisco, California, says that his company’s Financial Services Cloud CRM and Shield encryption program provide three essential post-ruling data management features. The first is repeatability. Firms must standardize their processes and give standardized tools to their advisors to empower their client engagement model, he says. That means everything needs to be consistent, to be able to track everything, and to centralize everything.

The second requirement is transparency. Each person on an advisory team should be aware of all interactions, communications and advice shared with the client, says Mahna. In addition, team members should be able to retrieve that information in a timely manner as it needs to be acted upon. Auditability is the third requirement. A firm’s internal compliance staff and external regulators should have the ability to access “all information that’s been captured, anything that’s been prevented, (to) make sure everything has been done in a prudent process,” he says. The data should also include a record of all advice, fees and product discussions.

Mahna offers an interesting perspective on the BIC Exemption as workflow. It’s a process that needs to be completed, he says, in which firms must capture the right information, prepare forms, manage disclosures, signatures, signoffs and other required tasks. “And most importantly, how do you make sure everything has been tracked, compliant, easy to access if you ever need to run a report and show it to a regulator?” he adds.

Looking Ahead

PIEtech and Salesforce.com are leveraging their software’s features to assist with fiduciary compliance. But the fiduciary role includes additional activities, including the use of detailed investment policy statements, prudent portfolio construction processes and ongoing investment monitoring. Although no companies have yet announced software to address the full range of fiduciary responsibilities, Wicks believes those tools are on the horizon.

“A new generation of product will emerge and it will be generated by product manufacturers,” he says. “Those product manufacturers will create fiduciary technology to drive the sales of their products, which will provide direct access to client holding data.”

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