Centralized Data Exchange Can Support DOL Fiduciary Rule Compliance

Dec 14, 2016 @ 12:01 am

By Ann Bergin

The U.S. Department of Labor's (DOL's) fiduciary rule for retirement-investment advisors has raised many, as-yet-unanswered questions about how it will impact the business—and the recent U.S. election results add further uncertainty about the future of the regulation. Whatever the fate of the DOL rule, market participants are now focused on implementation solutions because, with or without a mandate, the industry is shifting toward a fiduciary standard as Americans increasingly seek greater transparency and lower costs in their retirement savings.

Evidencing prioritization of clients' best interests in the investment advice that is offered will require new data management solutions. Thanks to the industry's determined efforts to meet the DOL rule's current April 10, 2017, effective date, valuable tools are being developed that will enhance information collection, sharing and reporting for insurance companies, funds, distributors, intermediaries and others in this market.

Spotlight on Data Management

The DOL fiduciary rule is designed to reduce conflicts of interest in the retirement advisory business and discourage the use of high-cost, commission-based investment products. To this end, it requires any advisor who provides advice on IRA and 401(k) accounts to abide by a fiduciary standard—that is, make investment recommendations that are in the best interests of the client—and disclose to clients all fees, conflicts of interest and compensation from third parties related to those recommendations.

Advisors who choose to offer commission-based products must adhere to a “Best Interests Contract Exemption” (BICE), which imposes additional, rigorous disclosures.

Compliance with these provisions would entail extensive collection, exchange, reporting and management of data across multiple categories of fees and expenses, putting new pressures on market participants' operations. If the rule takes effect as currently written, the costs of compliance—while depending on the type and size of the individual firm—have been estimated to average in excess of $1 million per firm, totaling several billion dollars for the industry as a whole.

Delineating the needs

The looming operational obligations of DOL rule compliance brought together a number of insurance-market players this year to define their specific needs around data collection and share thoughts on potential industry solutions. DTCC Insurance & Retirement Services (I&RS) helped spearhead the task force, whose participants included ACORD, the global standards-setting organization for the insurance industry.

In their deliberations, task force members agreed that, above all, they need a centralized repository with standardized, automated and transparent processes for populating, retrieving and distributing the fee, expense and commission data—at the product level—required for reporting and disclosures.

Expediting data transmission and retrieval

With these specifications in hand, DTCC I&RS proceeded to map out a service design. Task force members recognized that I&RS's role as a solutions hub, offering services that centrally connect insurance carriers, distributors and third-party providers, positions us well to deliver an industry-wide solution for fiduciary-related data management.

Development of this new service, DTCC Insurance Profile, is an example of industry collaboration—in this case, task force participants together crafting a solution that can streamline administrative processes, reduce costs and increase transparency for all users.

The features and functions we created automate collection and reporting of:

  1. Direct expenses (e.g., management fees, surrender charge rates, commission schedules)
  2. Indirect expenses (e.g., third-party payments, revenue sharing, marketing allowances)

DTCC Insurance Profile will support the exchange of this data between carriers and distributors to use for website disclosures as well as on-demand disclosure of fees and expenses.

Without a data-management and reporting tool like this one, broker-dealers and other distributors would be forced to expend tremendous time and effort gathering and organizing fee, expense and other required data from individual annuity providers—a process they would have to repeat each time those fees and expenses change. For carriers, the need to deliver individual responses and ongoing updates to periodic data requests would be similarly burdensome.

Under the DOL's fiduciary rule, the volume of reporting and disclosure activity in the retirement-savings industry would likely soar. Even in the absence of a regulatory mandate, however, consumers will increasingly demand enhanced access to providers' commission, fee and other cost data. Either way, the industry will need a central, automated repository for exchanging and updating annuity product information.

Join our conversation on integrating fiduciary data-management best practices into your operations. Engage with the cross-industry architects of the Insurance Profile solution in an upcoming free, live webinar hosted by DTCC on January 18, 2017, 2:00-3:15 PM EST and learn more about this unique marketplace collaboration.

Ann Bergin is Managing Director and head of DTCC Wealth Management Services.


What do you think?

View comments

Recommended for you

Upcoming Event

Apr 30


Retirement Income Summit

Join InvestmentNews at the 12th annual Retirement Income Summit - the industry's premier retirement planning conference.Much has changed - and much remains to be learned. Attend and discuss how the future is full of opportunity for ... Learn more

Featured video


Dynasty's Penney: Top RIA trends for 2018

What's next for RIAs? Dynasty's Shirl Penney talks about the growing numbers of entrepreneurial advisers. Plus, what inspired his own entrepreneurship.

Latest news & opinion

Raymond James executives call on industry to keep broker protocol

Also ask firms to pay for the administration of the protocol to 'ensure its longevity and relevance.'

Senate committee approves tax plan but full passage not assured

Several Republican senators expressed reservations about the bill, and the GOP cannot afford too many defections.

House passes tax bill, focus turns to Senate

Tax reform legislation expected to have more of a challenge in upper chamber.

SEC enforcement of advisers drops in Trump era

The agency pursued 82 cases against advisers and firms in fiscal year 2017, down from 98 the previous year.

PIABA accuses Finra of conflicts of interest

Public Investors Arbitration Bar Association report slams self-regulator over its picks for board of governors.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print