Close Close

Regulation and Compliance > Federal Regulation

Forget Robos; Regulations Now Top Driver of Advisor Tech

Your article was successfully shared with the contacts you provided.

Twice a year the advisor technology industry gathers to discuss the latest developments, launch new products and network to find ways to make advisors’ lives easier, while helping wealth management executives think through their technology roadmaps for the coming year.

The venue for these forums? Joel Bruckenstein’s Technology Tools for Today (T3) series of conferences. Last week in Las Vegas, Bruckenstein held court with over 200 executives from top tech vendors, large RIAs and independent broker-dealers at his T3 Enterprise conference at the fabulous Cosmopolitan hotel.

Unlike previous years’ T3 agendas, which were stuffed with robo-advisor themes, trending topics this year at T3 Enterprise were focused on how to comply with growing regulatory and cybersecurity requirements.

Due to the current troubles of the early robo-advisors, which are now experiencing slowed growth and executive turnover, and are being fully challenged by big online brands that have gone mainstream with robos for their self-directed clients, it appears that human advisors are no longer threatened by these annoying upstarts.

However, the next boogeyman on the block for an ever-worried industry is the growing specter of new regulatory changes and how to comply without blowing up advisor income statements.

Accordingly, top of the agenda at the conference was the Department of Labor’s new best interest fiduciary requirement for retirement accounts. A vast, sweeping piece of regulation, the DOL rule is quickly becoming one of the biggest changes to the business of delivering financial advice since the deregulation of commissions in the 1970s that created the discount brokerage phenomenon, and which ultimately led to online trading, the rise of independent RIAs and more.

Particularly now that the industry’s response to the DOL rule is rapidly creating two different camps – those that will choose to eliminate commissions in retirement accounts, such as Merrill Lynch and Commonwealth, and those that will allow commissions, such as Morgan Stanley and Raymond James – the stakes for technology compliance have reached unprecedented levels.

Regardless of which side of the street you are on, industry experts all agree that no matter what your sales strategy or whether you are an RIA or a broker-dealer, the new rule will require further documentation of client interactions, added workflow steps in signing off on new paperwork as well as an ongoing duty to supervise advisor actions and produce various reports to prove compliance — not just for regulators, but also to defend against future lawsuits.

“The organizing principals for following the DOL rule for all participants — both BDs and RIAs — can be summed up into three words: notify, satisfy, document,” said Brian Hamburger, CEO at MarketCounsel, an industry leading compliance consulting firm in his keynote speech.

“All firms when working with retirement accounts need to notify their clients that they are acting as a fiduciary in specific communications, satisfy that commissions and prohibited transactions are managed via the best interest contract (BIC) or level-fee exemptions, and document all aspects of their client interactions for future audit from examiners and plaintiff attorneys.”

Because of these new requirements, panelists at the conference all agreed that workflow, document management and compliance technology would be the key enabler for firms to be able to manage these issues. “Having integrated systems will be very important in this new environment,” was a common theme expressed.

SEC ‘Very Weak’ on Cybersecurity

Next up on the regulatory technology hit list was cybersecurity, a growing issue front and center for regulators, Hamburger noted. “The real problem with cybersecurity for advisors is that the SEC has been a very weak regulator on this issue. They have not been proactive, which is creating confusion and allowing other entities to step up with new and different requirements, such as the states.”

Dan Skiles, president of Shareholders Service Group (SSG), pointed out a best practice in the form of conducting regular penetration tests by third-party technology firms to identify potential trouble areas around protecting client information.

(Read Dan Skiles’ latest column for Investment Advisor on implementing a technology segmentation strategy to improve client service.)

“Often, your weakest links are your clients and client-service staffers who need to be better educated as to what things they should and shouldn’t do,” Skiles advised.

Another regulatory-driven technology trending topic at T3 was a renewed focus on how to better measure and manage client risk. Historically, the industry has relied on various risk tolerance questionnaires — some very simple, some more complex — to generate asset allocation investment recommendations for clients.

Multiple panelists at the conference weighed in with advice that what is needed is a much more robust process that can identify and document when a client’s answers to these questions conflict, change or are incomplete, particularly with a much more rigorous approach required for documenting recommendations in a post-DOL world. 

The good news for the industry is that there has been a noticeable increase in new risk analysis technology solutions that will become ever more important.

T3 has always been a barometer for where the advisor technology industry is headed. To continue the conversation, be sure to check out the upcoming T3 Advisor conference to be held in Orange County, California, Feb. 14-17, 2017.

In the meantime, to learn more about what went on at the 2016 T3 Enterprise conference, check out the many tweets on the #T32016 hashtag on Twitter.

— Read Treasury’s Financial Crimes Unit Releases Cyber Guidance on ThinkAdvisor’s TechCenter. 


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.