If you’re a follower of US financial services regulatory news, then (like me) you constantly wonder what happened to your life to allow “regulatory compliance” to become one of your interests. But in all seriousness, you’ve no doubt heard of the US Department of Labor’s finalization of their “Fiduciary Rule” this month (April 6, 2016). In short, it requires that anyone who is deemed a fiduciary now adopt a “Best Interest” standard of care. This has a wide set of implications for our industry, from limiting advisor compensation to increasing disclosures and statement detail. But most importantly, it changes the way advisors give advice and make recommendations. I’m all for it; investor protection and standards of care are the right things to do in any profession where the counsel has a material impact on someone’s life (even if the rule is “difficult” in many ways). Bottom line: the implication of a “standard of care” should also be seen as a “burden of proof”. According to the National Law Review, “… the advisor’s recommendations will be measured by what a hypothetical prudent and knowledgeable investor would do”.

Like all other regulatory changes, strict care is given to ensure better checks and balances in the markets and protect investors from unfair and unethical practices that place them at undue risk. All the right things to be doing, especially considering that it was a lack of these protections that lead to significant market collapses in the past. A resulting problem, however, is that they do not take customer experience or advisor workload into account. Often, regulations are implemented as a burden to the front office and customer, despite best of intentions.

An editorial at InvestmentNews highlighted the DOL’s rules (affectionately dubbed “The Fidush”) as an opportunity for technology to step up. Indeed, their assessment is correct – a resulting push to fee-based compensation and an emphasis on financial planning all point to the need for technology. Since The Fidush requires proof that the standard of care is met, it makes sense that technology can help ease the burden by automating the recording of an investor’s situation and limiting advice and recommendations to only those that fit within the standard. What this really points to is an opportunity for a technology-enabled makeover of the US advisory practice. In my last post (read it here), I talked about how mapping the digital customer journey and streamlining business processes can improve both the client and advisor experiences. They also help make it easier to keep your advisory practice compliant at the same time.

As part of prospecting and client onboarding, advisors under the DOL rules are going to want to come up with a financial plan and record the client’s financial situation, investor knowledge / experience, and goals. Streamlining that process, and integrating it into your customer-centric data is the first step. It’s the perfect opportunity to embed questions that you need to ask to establish what is or isn’t reasonable for them. Rather than make it an “add-on”, weave it seamlessly into the digital journey by asking the questions dynamically as the financial plan is developed. Think of it as transforming customer relationship management (CRM) into the initiation point from which advisors can service the entire customer lifecycle of processes, pulling in data from prospecting and feeding it into financial planning and storing the results. NexJ’s Customer Process Management (CPM) is the dynamic data entry and workflow tool to help you do that.

The next step is to use the CRM & CPM combo to start controlling the advice and recommendations, by leveraging that financial plan, all the standard of care information you’ve gathered, and market data / news feeds. In fact, a certain top-tier firm that I’m working with is doing just that. The system automatically presents relevant market data and news based on the client’s profile and limits recommendations to what is in their best interest. The advisor can ignore the warning, but must document why they think the advice is in their client’s best interest. Now that the entire lifecycle of information and workflows are automated and streamlined, they work together to improve efficiency and experience, but also to ensure compliance. That’s the key takeaway: use technology to avoid the compliance breach in the first place, by embedding compliant behavior into everyday customer workflows.

The other part of the discussion in last post was about integrating all channels and streams of updates. From a regulatory perspective, this also gives you the benefit of a centralized audit point. NexJ’s Customer Data Management serves as an audit archive, allowing compliance teams to easily identify changes, their source, and quickly tie cause to effect. So for every order, we can see what recommendation drove it, and what drove the recommendation. File -> Export -> Send to Regulator (not quite that simple of course, but you get the idea).

Give me a call, tweet me, or send smoke signals and I’ll be happy to talk to you about how NexJ helps firms meet the DOL’s Fiduciary Standard requirements.