Learn what points you should consider ensuring the success of your compliance program with the new DOL Investment Advice Rule.

In April 2016, the long-debated Department of Labor (DOL) Investment Advice Rule became a reality when the final rule was published.

According to the rule, a fiduciary – any person paid to give advice to an employer-based, insurance plan participant – must comply with the newly defined “Best Interest Standard.” That means they must act in the best interest of their clients when giving retirement advice.

The deadline for compliance: April 10, 2017. Full reporting and disclosure compliance is required by January 1, 2018.

What is the Impact Broker-Dealers, RIAs, and Insurance Companies?

The new standard requires advisors to take into account a number of considerations, such as:

  • Determine whether fees are reasonable
  • Ensure investments are adequately diversified
  • Verify and disclose any conflicts of interest

The rule acknowledges that there are a number of activities provided by an advisor that are considered non-investment advice and therefore non-fiduciary, such as education and platform provider information.

Exemptions apply to prohibited activities. One such exemption is the Best Interest Contract Exemption (BICE) which allows an advisor to receive commission-based fees, as long as the investment products and services provided satisfy a number of requirements outlined in the new rule.

What You Need To Do

The rule has a simple objective, but getting there can be a bit complex. Companies must rely on their legal and compliance departments to define and implement clear parameters for how they will provide services to clients.

Anyone active in financial services, from discount brokerages to annuities and more, needs to mobilize and address these changes.

The key transformation needs to be driven by a cultural change embracing the spirit of the rule, which is all about putting the best interests of clients before profits. Strong preparation, organization, and change management will universally set each firm’s program up for success.

Below are a few other points to consider for your DOL program:

1. Product & Service Model Vision – For the bold, the time may be right for a strong dose of vision to help set the path for product development and customer service for the next 40 years.

  • Impact Assessment: Conducting an impact assessment will help you learn how your firm’s product roadmap would be most productive, and it will ensure the product vision, scope and expectations can be adjusted as needed.

2. Operations Impact Analysis – Unless you’re a startup, you’ve been operating for some time and your employees have found effective means to get the work done to serve your customers. When a rule like this comes along, it ripples through your organization both with explicit impacts to products and system functionality, but also through day-to-day processes. An assessment of your entire operation ensures that you understand and can effectively map the changes required to your business.

  • Analysis: Often times there is a tendency to jump to the solution, using assumptions about day-to-day operations, but a true analysis of operations, including job shadowing, will best highlight the focus areas and resources that need to be deeply involved.
  • Change Management: Adopting the rule as seen fit by the legal and compliance teams are essential, but a concerted change management effort, including behavioral change identification and mapping, can be a critical piece.

3. Consider Industry Value Chain – Since 1974 and ERISA, much has changed within financial services. Many firms have outsourced activities like document fulfillment, fund accounting, custody, and trade settlement to name a few. So in addition to #2 above, you need to understand the processes outside your firm, but within the customer value chain, and consider helping to direct these activities for success in the context of the DOL rule.

  • Market Research: Consider performing market research across industry working groups and meetups to study responses and implementation efforts. That will provide a good indication of what is directly controlled by the firm versus what is not (file transmissions, outsourced vendor arrangements, etc.).

Count on Centric

Of course, these three points are just a part of the potential playbook that you would put together for your unique response to the rule.

At Centric, we work to understand your unique culture, circumstances, and what drives your decisions in operating your department or your business. From there we focus on where you need some help and work to mobilize the right assistance whether it’s a person or a team.

Our unique blend of industry perspective, business and technology services combined with our flexible, local delivery approach allows us to help you achieve compliance and strengthen your position in the marketplace. From expertise in impact analysis to large-scale, enterprise-wide program and change management and more, we are here to help.

We are just getting started, but we’d love to hear your thoughts on the impacts of this industry rule and, of course, if you’re in need of some perspective or assistance in your efforts, you can call on and count on us.

Contributing Author:

Dan Driscoll is an experienced management and risk consulting professional with extensive experience in the financial services industry. Dan assists banking, insurance and specialty lending clients with strategic assessments, risk assessments, large-scale systems implementations, operational/process improvements and internal controls.