More than 50% of broker-dealer and registered investment advisory firms are still in the earliest days of planning to meet the U.S. Department of Labor’s far-reaching fiduciary rule, despite the looming December 20 deadline, according to an informal poll from InvestorCOM.

December 20 is the date the DOL will begin to enforce the complex rule (called the prohibited transaction exemption, or PTE 2020-02), which governs how registered reps and advisors analyze and disclose rollover recommendations for investors in retirement plans and IRAs.

The poll was taken at a compliance roundtable hosted by InvestorCOM and is available in the compliance technology firm’s new report.

Some 50% of compliance executives at the roundtable admitted “we are just getting started” on meeting PTE 2020-02 requirements. The other 50% said “we are almost there.” 

“Based on what we've heard from customers, and the depth of the requirements, we're not surprised that 50% of firms [are] just getting started,” said Parham Nasseri, InvestorCOM’s vice president of regulatory strategy, in an interview with Financial Advisor. Firms concerned about the deadline, he said, could look to third-party software for help rather than trying to do it manually “to accelerate their compliance plans.”

“Across the U.S., firms are at different states of readiness for compliance by the December 20, 2021, deadline. Some firms have been planning for compliance for some time, while others have only recently become aware of the impact that this rule will have on their processes,” the firm said.

The rule says financial professionals must analyze each investor’s current retirement plan or IRA, openly consider alternative investments and demonstrate that their recommendations are in investors’ best interest. Firms and their reps or advisors also need to make sure their recommendations are relatively free of conflicts of interest. Each firm’s new rollover system also needs to be rolled out to employees in the field, who in turn need to be trained to use it.

Evolving fiduciary exam practices suggest “examiners want to see documented, repeatable processes for assessing reasonable alternatives when making recommendations. Firms cannot treat a conflict review as a onetime project,” InvestorCOM said.

“Instead, they need to have a mechanism for updating the review when clearing contracts change, the tech stack is altered, new products are launched, or rules are updated. Also, firms need to review and update disclosure and mitigation of conflicts over time. Firms should think along similar lines when creating compliance processes for the Fiduciary Rule 3.0.” (This is the third go-round for the Department of Labor in its attempt to create fiduciary requirements.)

How frequently are financial professionals making rollover recommendations? Some 50% make rollover recommendations once a week, 13% make them daily, 25% make them monthly and 13% make them annually,” the poll found.

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.