The U.S. government claims that financial advisors charge about $17 billion in exorbitant fees a year by putting their own interests to earn high commissions over the client’s interest. The government, therefore, wants to regulate these charges by introducing the Labor Department’s fiduciary rule 29 CFR – parts 2509, 2510, and 2550) to stop them from doing so.
Crucial concessions were made to the final ruling to make implementation easier for the financial industry. However, the fear of litigation still hangs in the air particularly if financial advisors are unable to prove that their retirement advice is in the client’s best interest and not their own.
Huge disruptions to the current landscape
Thousands of advisory and insurance firms must now make adjustments to their operations and procedures which serve the $25 trillion retirement services market – some of these modifications promise to fundamentally shift the advisory landscape.
This rule will primarily affect many entities such as independent broker-dealers, insurance agents, investment advisors, retirement providers, and life insurance companies that are currently operating under less stringent standards. They may have to create new administrative steps and invest in technology and training to meet the new requirements.
Smaller brokerage firms or dealers will struggle to cope with the rising costs of compliance. Many will have to build new skills and amend their current operations. Some may even have to consider mergers to meet the scale of the requirements.
The role of Technology Integration in the future
As the impact of the ruling begins to take effect, advisory firms must leverage technology that’s both flexible and scalable to stay compliant in an ever-changing regulatory landscape.
In a conference at Orange County, California, Drew DiMarino, head of sales for e-Money, noted that more than $50 billion had been invested in FinTech companies. Although a wave of integrations is driving the industry, the number of integrations alone cannot determine if the firm is tech-savvy. The question that FinTech firms must ask themselves is – Does integration enhance their existing workflow? Will it help them become better advisors?
Based on a 2015 survey conducted by Fidelity Clearing and Custody Adviser, FinTech advisors manage nearly 40% more assets and serve 55% more clients than other advisors. As Fidelity calls them, about 75% of these “E-Advisors” believe that technology has been the key to their growth. Technology providers are planning to put together an integrated technology stack that brings together all categories of financial services such as financial planning, portfolio management, wealth reporting, risk analysis, rebalancing and managing client relationships to drive transparency and economy of scale.
Advisors can use client portals to get a holistic understanding of their client’s portfolio and facilitate better relationships by safely collaborating with other professionals with whom their clients work, or co-manage a series of accounts of the client’s entire household. FinTech firms can also use their existing client relationship management systems to monitor and track the productivity of reaching out to their clients electronically. Such firms must automate their workflows to monitor and document the process over time and provide more aggregated financial information.
Avoid Technology Pitfalls
To benefit from technology, advisors need not implement a new system just because another firm has done so. At the same time, it is important to recognize when your existing technology isn’t working for you. As noted by Tricia Haskins, Vice President of Practice Management and Consulting at Fidelity Investments, using a CRM system for advisory firms can be crucial, but getting advisors to use it can be tricky. In addition, choosing the right technology can be a challenge. Advisory firms must first understand the scope of their objectives and document their current and future requirements in order to properly evaluate technology vendors and their solutions prior to making a business commitment.
Conclusion
“Planning-led advice is the future of this business.” To cater to the next generation of clients, you must be able to create a comprehensive investment planning experience using automated platforms. You should gain a 360° view of your client to understand their investment objectives and financial circumstances. Your systems must enable you to pull information from disparate sources, aggregate data and put everything into context to:
- Reduce the necessary response time to implement new fiduciary regulations.
- Enable collaboration across various teams in the organization in order to be aligned with client goals and financial needs.
- Gain timely access to the most valuable account information that is needed to deepen client relationships.
