This material is intended for informational and discussion purposes only and it not a legal opinion or analysis and cannot be relied upon as authoritative. Matters discussed in this article must be referred to your counsel for review.
Are the in-boxes and social media feeds at your firm overflowing with blog posts, news articles, and webcast invitations promising to help you understand the impact of the DOL Fiduciary Rule? They are at Boston Financial and DST. And the situation has been made worse by the second wave of information promising to explain the potential impact of a myriad of lawsuits filed against the DOL seeking to prevent the Fiduciary Rule from taking effect.
So what’s an asset management firm to do? Put your preparations on hold, waiting for a potential injunction against the DOL? Or continue to corral resources to develop a plan for compliance?
If your firm has decided that the financial and regulatory risk of not complying is too great to wait for the outcomes of a potential lawsuit (or five), we suggest your plans include an operational impact assessment to examine the role the Fiduciary Rule may have on your back-office policies, procedures, controls, infrastructure, and oversight.
Getting Started: Questions to Consider:
What’s the best way to start, given the volume of information available about the Fiduciary Rule?
During a recent webcast hosted for our client community, Nick Horvath and I outlined some suggested steps to help asset management firms clear through the clutter so they can begin to prepare to comply with the Fiduciary Rule. In our presentation, we recommended that firms focus their attention on two areas:
(1) points of retirement customer contact, particularly in their call centers, and
(2) the transaction processing touchpoints with retirement investors.
Assessing the Impact on Customer Contact
The DOL Fiduciary Rule redefines what constitutes investment advice under ERISA and the Internal Revenue code, and increases protections for consumers. We believe this calls for a review of all points of customer contact to assess what types of contact may be redefined as advice under the Rule. To do this, consider the following steps:
- Inventory your shareholder contact points. Which types of contact constitute shareholder education versus investment advice?
- What is the impact of the new definitions of education versus advice on your shareholder call center — for both your IRA and retirement products for any of the potential caller scenarios (e.g., a call from a beneficiary versus a call from a plan sponsor)? What improvements are needed in terms of call scripting, staff training, and oversight? Consider looking closely at:
- Inbound calls from shareholders requesting account transactions or making general inquiries about account status
- Inbound calls from shareholders requesting product information or making “how to” inquiries
- Outbound calls and correspondence regarding transfer of asset transactions and not-in-good-order clarifications
- What is the impact of these new definitions on your print and electronic fulfillment? On your written correspondence? Your website? What improvements are needed to educational content and messaging? What improvements are needed to the process of developing and pushing out material?
- Finally, what improvements are needed to your content management and oversight processes to ensure ongoing compliance with the DOL Fiduciary Rule?
During the webcast, we also suggested that asset management firms take time early in the process to examine the impact of the DOL Fiduciary Rule on their transaction processing environment, particularly for transactions that will be executed under a BIC (best interest contract). In addition to completing a comprehensive transaction processing assessment, firms may want to take a granular look at the need for process and systems improvement in the following areas:
- Systematic agreements, which are grandfathered, versus one-offs and new rollovers
- Handling default dealers on shareholder-initiated purchases and new accounts
- New account set-up
- Dealer assistance monitoring activity for direct accounts
Once a firm has identified where the points of impact will be, they will want to proceed with either adjusting their in-house operations and technology systems, or working with their business processing outsourcing provider to ensure they are making the necessary adjustments to comply by the relevant go-live dates.
DST and Boston Financial are clearing through the clutter within our shareholder recordkeeping systems and operations procedures with an eye toward how we can support our clients with respect to the Rule. Our enterprise-wide operational assessment identified more than 300 potential areas of impact — ranging from calls with shareholders, to core processing (e.g., transfers, account maintenance), and all touchpoints spanning correspondence, mail center, quality control, special mailings, media updates to confirms/ statements/ forms/ websites and year-end activities. Subcommittees and working groups are thoroughly analyzing these areas to try to understand the implication of the Rule on each process or service.
A Clearer Path for Moving Forward
Both asset management firms and back-office service providers have a very short turnaround time for analyzing, and then meeting the terms of the DOL Fiduciary Rule. Focusing on the two key areas of impact to your back-office operations — shareholder contacts and the transactions that result — may offer your firm a clear path for moving forward in your own preparations.
Nick is the Compliance Officer for DST’s Asset Management Solutions business unit. In that role, he is responsible for leading DST’s strategy in shaping, communicating, and implementing regulations that impact shareholder recordkeeping. With responsibility for the general risk management of Asset Management Solutions, Nick led the formation of the Full Service fraud prevention program along with the establishment of its online “Best Practices” library. He also led the development of and now administers DST’s Chief Compliance Officer support program. Mr. Horvath came to DST from a large bank in Texas, where he was vice president over the institution’s stock transfer operations. A featured speaker at webcasts and industry conferences, Mr. Horvath leads the Steering Committee for the DST’s Regulatory Compliance Advisory Group. A certified Public Accountant, Nick earned a Bachelor of Business Administration from the University of Iowa. He is the author of several SEC comment letters.