For some reason, some firms still do not realize that this regulation applies to them. “There is a common misunderstanding that the new compliance requirements will only impact broker-dealers. However, the rule also applies to investment advisors,” InvestorCOM said.
Some 88% of firms’ compliance executives believe that broker-dealers will be affected most by the DOL fiduciary rule, according to the poll.
“It’s critically important for investment advisors to assess their current compliance deficit and determine what they will need to implement to meet their regulatory obligations in full. While investment advisors might believe they will not be examined for compliance for several years, regulatory examination schedules are changing for a variety of reasons, and RIAs may be taken by surprise by unexpected examinations,” the compliance firm said.
No broker-dealer or RIA will be able to access or perform apples-to-apples analysis with regard to existing, alternative and recommended plans and products without access to a database.
The world of pre-trade analysis and post-trade review are coming together, the firm said. A firm needs to know the basis for a rollover recommendation and create a comparison for the investor’s alternatives before the client’s assets are rolled over. “The transaction also needs to be run through the back-end surveillance system to ensure that it was completed and approved so that commission and fees can be paid in the correct manner,” InvestorCOM said.
Firms also need to be able to trace all data lineage—the history of the data as it is used throughout the process, from beginning to end, the firm said.
When asked what their priorities are in implementing the new rule, 75% of firms said they were focusing on “deploying new technology” and 25% said they were working on “policies and procedures,” according to the poll.
“With multiple disconnected systems, and manual interventions, this can also be a significant challenge for firms. Today, many firms are working on substantial data remediation projects to enable existing data and databases to be brought into this compliance process, and to ensure the data quality is sufficiently high for automation,” InvestorCOM said.
When a firm is in the early stages of its Fiduciary Rule 3.0 project, one of the most important areas to assess is the quality and connectedness of the data that will be the foundation of any automation program. “It is essential to impress on the business that it’s not an option to take a minimum viable product approach to this compliance process—data quality and availability have to be present from the start,” the firm said.