How to Use Technology to Comply with DOL Fiduciary Rule

Published by Shawn Gillespie, Director - Senior Account Executive, Business Development
June 5th, 2017

To comply with DOL regulations, many firms are simply adding all their new brokerage accounts to their managed account platforms. This approach seems to be a straightforward solution to ensuring fiduciary compliance, but it can create other unwanted challenges.

While managed account platforms have some of the features needed to meet the DOL fiduciary standard, they do not include all the required capabilities. They also come with additional operational overhead as well as third-party technology costs.

To support the high volume of additional brokerage accounts, firms have to staff up their managed account platforms. Low balance brokerage accounts do not justify the additional expense that comes with putting them on a managed account platform, so despite the fact that this approach resolves some regulatory challenges, it is a very costly model that fails to serve firms’ goals over the long haul.

The Shortcomings of a People-Centered Solution

There are several drawbacks to employing a DOL compliant strategy that relies on additional people. For instance, because managed account platforms require so much staffing up, they become far too costly to utilize for accounts with a low balance. It is conceivable that firms can lose money by moving particular types of accounts to the managed account platform.

Deploying people as the sole solution for the DOL challenge is not only expensive, it can yield extremely inconsistent results. With so many people making decisions, the potential exists for accounts to be mistakenly accepted or rejected, and on an unpredictable basis. It is plausible to imagine a client attempting to open two very similar accounts yet have one rejected and the other accepted. This inconsistency not only causes pain for investors, it also has the capacity to frustrate advisors.

A Two-Part Solution to the DOL Challenge

One alternative to using managed account platforms is to implement more comprehensive solutions that are already used in the private bank and trust market industries. For a number of years, these systems have been helping firms address the fiduciary standard. They include CRM, document management,  electronic signature systems, and feature client portals and documentation tools.

These solutions are built to accommodate the requirements of DOL regulation. They help advisors keep track of their communications with investors, making accountability easy. The right tools to manage fiduciary compliance already exist in them. They can help firms avoid the costly strategy of putting certain accounts on a managed account platform that only satisfies DOL regulation in part. They do not, however, completely solve fiduciary fulfillment by themselves.

While technology is integral to solving the DOL puzzle, it is only part of the resolution. Process is equally vital to fiduciary compliance. Implementing a bad process on a great technology platform will result in the same operational overhead that firms are looking to avoid in the first place. The simplest way to achieve DOL compliance is to develop a sound operational process on a platform that fully supports automation so that staffing up can be avoided from the very start.

The Impact of Automation

Even when processes are great, there is no guarantee they are being implemented well. Good process only affirms that the right tasks happen in the correct order. Suitable policies, procedures, and processes are certainly central to fiduciary compliance, but the ability to carry them out through an automated system is the most effective way to resolve the DOL challenge.

Fiduciary regulation aside, automating well-crafted policies, procedures, and processes helps firms grow and serve their clients every day. Simply defining these operations does not ensure they will actually happen. Creating policy merely outlines what should happen. It is the ability to consistently apply whatever rules the firm puts in place that solidifies a DOL strategy that works.

Changing the Game with ARKON

ARKON fuses CRM, investment performance measurement, client reporting, fee management, data aggregation, and portfolio monitoring into a unified platform, bringing all the moving parts involved in wealth management under control in one accessible place. It also integrates document management, e-signature, and client portal systems to provide complete visibility and transparency into advisor-investor interactions and support stringent regulatory requirements.

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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