As the final version of the new fiduciary rule approaches, financial advisors need to start updating their technology and computer systems to fit the new requirements. Although the Department of Labor (DOL) will give advisors a window of time to get their practices into compliance, it’s not a good idea for them to wait until the last minute to begin making changes. Advisors need to go over every inch of the technology that they use to ensure that it will maintain their status as fiduciaries under the new definition and keep them in compliance with regulators.

The New Rules

Although the final set of rules pertaining to the DOL bill have not yet been released, it is likely that about three-quarters of it will be passed through in its present form. This means that advisors who work on commission will be forced to disclose how much they make for each transaction to their clients, and they will also have to complete an additional set of paperwork that guarantees that they will still act unconditionally in the best interest of their clients with each commissionable sale. Both commissioned salespersons and those who charge fees for their services will also be required to disclose any possible conflicts of interest that they have. (For more, see: What the DoL’s Fiduciary Policy Means for Advisors.)

Technological Impact

The new rule will have a far-reaching effect on the retirement planning industry and advisors need to make sure that their digital technology is strictly programmed to uphold them to the new fiduciary status as soon as possible. This means that those who have a seamless digital portal that clients can use on an automated basis must clearly disclose all possible conflicts of interest and compensation that is received if the clients are able to perform transactions without speaking directly to a person. Failure to do this could leave the advisor open to frivolous lawsuits or other sanctions that could otherwise be easily avoided. And advisors can also harness their technological services to properly scale their businesses, which can help them to focus on the segment of their clientele that provides them with the largest percentage of their revenue.

Advisors may in fact want to segment their clientele into different categories, such as those who they want to continue working with, those who can use their automated services and those who may be better off using another advisor with a different business model. Using these labels can help advisors to communicate the coming changes to their clients in a more focused and appropriate manner. (For more, see: How Advisors Can Plan for Fiduciary Rule Changes.)

Proper use of technology can also help advisors to become more transparent in the processes that they use so that regulators and compliance officers can clearly see their operational procedures. Advisors are also probably wise to use programs and systems that allow them to completely integrate their trading, client contact and document and data storage platforms into a single seamless system that automatically makes all necessary changes and adjustments to all areas of client management with a single entry in just one area. This can make it much easier for advisors to adapt to any new changes that come with the final version of the fiduciary rule that weren’t in the current version.

The Bottom Line

The new fiduciary rule will force many advisors to restructure their businesses and make substantial adjustments in their client bases. Those who start upgrading and modernizing their technology now can get a head start on the new requirements that will come with this rule. (For more, see: Why Advisors Should Embrace Being a Fiduciary.)

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