The most important thing the financial services industry learned in 2016

December 30, 2016 by Brandin Arndt

A group of young financial advisors celebrating the new year while thinking about the compliance lessons they learned in 2016

About the author:

Brandin Arndt

Business development representative

Brandin assists the sales team in the development and expansion of the Advicent enterprise market. He is passionate about sharing the value Advicent brings to companies throughout the financial industry.

As 2016 comes to a close and firms and advisors are looking toward the new year after the holiday celebrations, it is important to remember what this past year has taught the financial services industry. One of the most disruptive regulation changes in decades hit the U.S. market hard — the DOL Conflict of Interest Rule. Designed to rid the industry of exorbitant fees and focus more on the best interest of the client, the rule came as a shock to many.

The U.S. is not alone in its need to create new compliance strategies

When the government threw these new regulations at firms, thousands of advisors elected to get out, firms scrambled to figure out what this really meant for their business, and some even elected to do nothing.

The reality is that this rule was in the works years before the DOL finalized it in 2016. In 2010, the DOL released a proposal for the fiduciary rule. In 2013, Thomas Perez took over as labor secretary and embarked on a renewal initiative to push this rule to be finalized.

Additionally, all the signs were there globally that this type of regulation would come into play in the U.S. This client-focused trend has swept markets around the globe such as Client Relationship Model (CRM) in Canada, Provisieverbod in Holland, Retail Distribution Review (RDR) in London, and others.

So, what have we learned in 2016?

So what has 2016 taught us? It may seem obvious to some, but ultimately this client-centric trend and the DOL rule are here to stay — whether in writing or in spirit. We believe that no matter what happens with the future of the rule, client expectations have significantly changed because of it. Clients now expect financial professionals to act in a fiduciary manner and it is at the forefront of their minds when they engage in an advisory relationship.

Many questions still remain about the rule, however, and it is clear that there is no one solution to solve this compliance puzzle. We know financial planning is one important aspect to ensure advisors are acting as fiduciaries, but there are many things that need to be considered when creating an effective compliance program.

If appropriate processes and tools are not implemented well in a firm, the DOL rule poses operational, financial, and reputational risks for both firms and advisors. Although this disruptive rule is creating a lot of industry frustration, it also brings opportunities. Below are some of the opportunities that the DOL rule is creating:

  1. Motivating younger advisors to remain in the industry – Forcing many firms to move from a commission-based model and to a more set salary compensation model for advisors, the rule is helping to bring in and keep current young advisors in the industry.
  2. Increased client trust – Clients are likely to put more of their trust into the hands of their advisors because that advisory must be acting in their best interest. This can lead to a better client-advisor relationship and ultimately more AUM for the advisor.
  3. New ways to differentiate your firm – Expectations are evolving and there are new factors effecting the way firms differentiate themselves. More transparency, improved customer experience, and focusing on the needs of their clients.
  4. Acceleration of technology and digital tools – Advisors can leverage technology to help give advice to smaller accounts. Financial planning software from Advicent can even help firms create standard compliance workflows for advisors to ensure that set processes are followed and every step of the process is documented with every client. 

Click here to learn more about The Compliance Blueprint from Advicent and how we can help you in your 2017 compliance strategies.