Coming to Grips with BICE and What You Must Do

Published by Shawn Gillespie, Director - Senior Account Executive, Business Development
May 11th, 2017

The Best Interests Contract Exemption (BICE) is a central piece of the DOL fiduciary rule. It exempts particular transactions from the rule so that advisors providing non-discretionary advice may receive variable commissions on certain products stipulated by the regulation. Assuming the fiduciary rule ultimately takes effect, different accounts that are held by the same clients – retirement accounts versus non-retirement accounts – will be held under different rules. Half of them will require exemptions while the other half will not.

Advisors will have to obtain BICE agreements for all retirement accounts so  they will qualify for variable commissions. While these exemptions can be an effective solution for working around the DOL challenge, acquiring them will not be easy. With hundreds of advisors serving thousands of clients, securing BICE agreements is going to be a massive undertaking for financial firms.

5 Steps to Securing BICE Agreements

Securing a Best Interest Contract Exemption is a five-step process that requires considerable work by advisors.

  1. First, they must compile comprehensive financial profiles and gain full understanding of their clients, client’s needs and goals, and their investment style to determine the right type of agreement to create.
  1. Next, they draft the best interest contract and present it in full to their client.
  1. Once the client has reviewed the agreement in detail, advisors are responsible for answering any questions about it and ensuring the client understands it completely.
  1. Advisors must then obtain an electronic or wet client signature to bind the agreement between investor and firm.
  1. Finally, signed contracts, including all disclosures, disclaimers, and fees, must be stored and made available online to both advisors and clients for periodic review. Total client transparency is of the utmost importance.

 

Challenges to Obtaining BICE Agreements

Getting current investors to sign BICE Agreements will be difficult on numerous levels. Topping the list of challenges is the fact that firms have never before had to secure these agreements. For years, huge firms that  employ hundreds or even thousands of advisors who serve thousands of clients have handled their business one way, and now they are required to completely overhaul their policies and procedures to accommodate a brand new mandate. Educating their advisors on serving investors in accordance with the fiduciary rule is a significant obstacle for firms to address.

As firms make big operational adjustments, advisors must work to maintain sound relationships with investors through the shifts mandated by the DOL rule. Since the rule heightens the advisor responsibility to a level the investor likely already assumes, explaining changes in responsibility, security restrictions, allowable transactions, conduct standard, and compensation will be challenging.

Technology, or lack thereof, can also make or break DOL compliance and the process of securing a BICE agreement. Without a CRM, document management, and electronic signature systems, firms must rely on manual record keeping and file storage, and must secure and retain wet signatures on all contractual documentation. Even with the appropriate systems in place, firms will struggle with compliance and BICE agreements unless their technology is fully integrated. Disparate systems can create more problems than they solve by rendering information and documentation inaccessible.

 

Best in Class Solutions to BICE Challenges

Leading firms are responding to the BICE challenge by utilizing fully integrated solutions to support all the steps required of securing a Best Interest Contract Exemption agreement. The most effective systems are CRM-based and include electronic signature and document management capabilities as well as a client portal for advisors and investors to communicate.

The most important feature in a comprehensive, integrated platform is a home office view into the advisor and investor activities. Firms need visibility into the communications between the advisors and their clients.  A standalone CRM only addresses the advisor’s needs, whereas a fully integrated system with a home office capability enables firms to monitor not only valuable communications between the advisor and investor, but also the e-signature and document management tools, as well as the portal that gives investors full transparency.

ARKON CRM can support your firm’s efforts in obtaining BICE agreements. The ARKON CRM web-based platform was built to provide full visibility and transparency into the advisor and end investor relationship. ARKON CRM integrates your document management, e-signature and client portal systems allowing your firm to monitor the valuable communication between all parties involved in the relationship and meeting the needs of the regulatory requirement.

 

About the Author: Shawn Gillespie is an Account Executive at First Rate, Inc. and helps investment firms and advisors solve their toughest challenges with innovative technology solutions.

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