Financial services organizations have been tasked with showing that their broker-dealers and registered investment advisers are working in clients' best interest under the Securities and Exchange Commission's new Regulation Best Interest rule, set to go into effect on June 30.
According to the rule, firms must meet a "general obligation" requiring that broker-dealers comply with component obligations related to disclosure, care, conflicts of interest and compliance.
Broker-dealers and registered investment advisers must also provide retail investors with a succinct summary about the relationship and the services offered by the firm, and the required standard of conduct associated with the relationship and services. They also are required to hold onto all records of information collected from clients for at least six years.
Sound simple enough? Not quite.
There is an active debate about whether the rule goes far enough to protect investors. In fact, two lawsuits currently underway claim that the SEC failed in its mandate to create a uniform fiduciary standard.
These lawsuits are not likely to be resolved before Reg BI goes into effect, causing firms to wonder how they should proceed, particularly when some states are enacting their own laws governing behavior.
Client-first approach wins out
Despite the present disputes, efforts are focused on protecting client interests and providing investors with the best possible guidance. To do that, advisers and broker-dealers must get to know their customers — from their current priorities to their job status or recent promotion, a child attending college or whether they were the recipient of an inheritance. Each factor contributes to how clients handle their money, and the factors do not remain stagnant.
Financial professionals can excel if they carefully nurture these relationships. With regular check-ins via phone, text, email or over social media, they can easily connect with their clients and provide them with service and guidance tailored to their needs and strategies.
Within the scope of regulations, this can become complicated. Firms need a robust compliance infrastructure to ensure they meet all the requirements, including documentation, remediation, training and periodic review. They also need a plan and the right digital channels enabled to ensure both the delivery of Form CRS and the ability to answer any client questions.
New technologies can help
With recent advances in fintech, many of these concerns can be alleviated, making it easier to comply with new regulations like Reg BI.
For example, technology providers now offer solutions that enable compliant texting and calling in a single click across web and mobile devices. From logging calls and texts automatically to offering capabilities to document a client's understanding of the potential risks, rewards, and costs associated with investment recommendations, these solution platforms can preserve records in accordance with industry standards, like the six-year requirement specified by Reg BI. In the event an adviser is questioned about client interactions, they can now quickly search and compile a comprehensive view of their client engagement in seconds.
Organizations can now implement workflows that help advisers understand when and how to contact clients. With advanced data analytics and predictive capabilities, these workflows can be informed by client-specific strategies that trigger adviser actions at just the right time to serve the client at the right time. Doing so goes a long way in forwarding client interests. AI-based solutions can also automatically detect and alert on potential conflicts so that they can be addressed and resolved immediately.
The benefits of leveraging new technologies goes beyond saving advisers time associated with data entry and mundane recording practices. It makes it easier to surpass the latest guidelines regarding client service.
Compliance makes good business sense
Although new regulations have a tendency to solicit eye rolls and protests from financial services companies, Reg BI has forced them to think about how they deliver service. The goal should always be to protect client interests, yet the processes and abilities that enable firms to succeed have long been perceived as difficult and time-consuming, or too expensive to implement as they consider their own fiduciary responsibilities. Now they don't have a choice.
Fortunately, technology has eliminated these pain points and then some. Modern, AI-based fintech solutions, designed with users in mind, can simplify workflows and offer sound recommendations in seconds that are based on thousands of data points.
This opens up enormous amounts of time that advisers can spend on cultivating new prospects and identifying the needs and potential services for existing customers, based on factors and patterns hidden in the trove of client information financial professionals collect over the course of the client relationship. Leveraging this highly relevant data will become more important under Reg BI as advisers shift their practices to focus less on individual commissions and more on growing their share of wallet.
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By using technology to work in a client's best interest, advisers and broker-dealers become more efficient and yield higher sales overall — all while identifying and mitigating compliance risks such as record keeping, supervision and security.
Moving forward, organizations should consider Reg BI guidance the minimum for client service while aspiring to go much further. Leveraging key technologies, they can ensure that clients' interests are protected as well as their own.
Donna Prlich is chief business officer and general manager of social at Hearsay Systems.