Some reps who think they are ready for a fiduciary standard may not fully grasp the implications.
More than two-thirds of financial advisors, 67 percent, say recent moves by regulators are having “minimal to no impact” on their risk assessment processes, according to a survey. Plus, 68 percent say Department of Labor and Securities and Exchange Commission actions have had “minimal to no impact on their client interactions regarding risk assessment.”
The survey, led by the tech firm AdvisoryWorld, also says 62 percent of the roughly 250 poll respondents are “not changing their documentation practices in anticipation of the DOL fiduciary duty rule being finalized,” the firm says.
But are advisors really that unaffected by the coming shift in the fiduciary standard and other regulatory changes?
“There may be some misunderstanding of what is really required to meet the fiduciary standard, which involves establishing a process [for evaluating] for the riskiness and suitability of investments for clients and risk profiles for clients,” said Philip Wilson, CEO and founder of AdvisoryWorld, in an interview with ThinkAdvisor.
Most advisors polled, 67 percent, also said they had “an integrated system in place for monitoring and managing suitability of each household’s investments across their entire book of business,” according to AdvisoryWorld.
“Yes, advisors seem to ‘get it,’” in terms of grasping what technology can do to help FAs with compliance issues, explains Wilson. “But are they actually doing it? That’s another matter. Are they getting what they need to act? From the survey, my sense is that while some may come close to doing so, many are not.”
Indeed, regulatory issues continue to plague advisors and their broker-dealers.
For instance, LPL Financial (LPLA) spent $36 million on regulatory charges in 2014. This year, the Financial Industry Regulatory Authority levied a $11.7 million charge against LPL for supervisory failures associated with the sale of complex products; and New Hampshire regulators want LPL to pay $3.6 million in fines and restitution for alleged unsuitable sales of nontraded real estate investment trusts.
“There are so many complicated compliance issues today and so many derivative products,” Wilson said. “It’s a lot more complicated than in the past, and only now are some firms coming around … to see the need for an integrative process that looks across an entire book of business” at a broker-dealer or RIA.”
Having an easily repeatable process that individual advisors can follow--using technology--can also help eliminate troubles with the SEC and FINRA, he states: “You just can’t do this one account or one advisor at a time.”
A total of 95 percent of advisors polled say that performance-reporting software is either “very important,” 57 percent, or “important,” 38 percent. Just 5 percent indicate that it is “not important.”
“They may not get all [this technology] from one source,” said Wilson. “It could be from here and there vs. being a comprehensive package.”
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Janet Levaux
Editor-in-Chief Janet Levaux has covered the financial markets since 1991, with a focus on financial advisors since 2005. After graduating from Yale and the Johns Hopkins School of Advanced International Studies (SAIS), where she studied global economics, Janet worked as a freelance financial and business writer in Japan, and then as a reporter and editor for Investor's Business Daily and the Bay Area News Group in California. She earned an MBA in 2007 and since then has helped lead key ThinkAdvisor projects like its Neal-Award winning reporting on Ken Fisher, Luminaries awards program and Women in Wealth newsletter.
