As we get closer to the Department of Labor fiduciary rule effective date, firms are adjusting their internal operations to make sure they’re compliant. Improving technological solutions is a big part of this process.
Earlier this year, SS&C Technologies conducted a stealth survey at the Pershing INSITE Conference of investment professionals, registered investment advisors, and senior-level corporate executives regarding their plans to enhance specific technologies as the DoL rule approaches.
The answers were mostly straightforward: document management/client portals (18%), billing/fee scheduling and disclaimer support (14%), portfolio management and reporting (14%), financial planning (13%), risk (12%), proposal generation (10%), and portfolio analytics (9%).
Is that enough? Technology, like most systems, is only as good as the people using it.
Roughly seven percent of all advisors have misconduct records. At some financial institutions in the U.S., as much as 15 percent of advisors have misconduct records, according to a recent study, published by Mark Egan of the University of Minnesota School of Management and Gregor Matvos and Amit Seru of the University of Chicago Booth School of Business. In an environment of increased regulatory risk, these types of employees can have grave financial consequences for a firm.
The change from commission-based compensation to fees on assets will put some revenue pressure on individuals, which increases the risk of misconduct, said Dr. Ron Rhoades, director, Financial Planning Program, at Western Kentucky University in an IBM podcast.
“It is very difficult for someone who has been doing basically a product-sales-based practice to transform themselves into a fiduciary advisor and to change their mindset completely,” he said.
In order to solve this problem, IBM recently launched its Client Insight for Wealth Management set of surveillance solutions to help wealth management firms ensure their employees are acting in the best interests of their clients. The product is powered by IBM’s cognitive computer, Watson.
Surveillance technology is common in financial institutions. JPMorgan Chase, for example, is rolling out an advanced program to identify rogue employees. Traders are increasingly subjected to pre- and post-trade surveillance requirements, meant to mitigate market manipulation and insider trading. Outside of the financial world, some employers are independently monitoring their workers’ computers for misuse of company equipment or information.
Though still nascent, surveillance technology for wealth management is expected to grow as regulation become more strict.