One of the best parts of my job is that I get to work with some of the biggest and best firms in the business. When it comes to regulatory compliance, I find that the firms are more eager than expected to share their thoughts and challenges, and really and truly collaborate on solutions. Back in April, earlier this year, the US Department of Labor (DOL) finalized their “Fiduciary Rule.” While it seems controversial for many reasons – like whether the DOL is regulating outside of their jurisdiction, or if this makes it too difficult for firms to stay in business – there is one certainty: the updated DOL Fiduciary Rule is here and firms have to deal with it. Having some of the largest US wealth management firms in the industry as our clients, I thought this would be a great problem for us to work through as a think tank.
To summarize, the new rule elevates standards for financial advice, forcing financial advisors (FAs) to operate at a fiduciary standard when making investment recommendations to clients. This replaces the previous suitability standard, and now requires FAs to prove that their recommendations are in their customer’s “best interest,” avoiding any conflicts that would prevent them from doing so – including no longer directly benefiting from compensation that depends on the investment products they recommend. What this means is that firms need to ensure their financial advisors are actually providing a fiduciary standard of advice, but more importantly they need to be able to prove it – and fast, as enforcement of the new DOL Fiduciary rule starts in April 2017.
In the short term, all firms agreed that the approach would involve automating and streamlining the documentation of advice and recommendations in order to capture evidence as proof of compliance. In the long term, we discussed a strategic approach. If there’s one thing we can expect, it’s the unexpected – with new and evolving regulations coming out all the time.
NexJ has been working with firms to deploy innovative and strategic solutions across the globe for demonstrating compliance with multiple regulations. The strategy of choice for top firms leverages a combination of our Customer Relationship Management (CRM), Customer Process Management (CPM), and Customer Data Management (CDM) solutions. It starts by establishing a comprehensive risk and regulatory-focused view of customers, enabling financial advisors to better deliver a fiduciary standard of advice. The solution then drives compliant front-office behaviors through its business process automation, by streamlining key activities like documenting recommendations. All the data is stored, archived, monitored, and reported on to prove compliance to regulators. It’s already been used successfully by the private banking division of a major Swiss-based investment bank to demonstrate compliance with KYC and AML requirements in the United Kingdom.