The New Fiduciary Rule: Is Goals-Based Wealth Management Now a Reality?

June 1, 2016 Kim Neuwirth

What is the Fiduciary Rule

It’s an exciting time in the financial advisory industry, as the long awaited Department of Labor Fiduciary Rule becomes a reality. Whether you are in favor of the rule or not, the one non-debatable impact is that technology will be at the heart of the implementation. In an ironic twist - regulation may be the driving force behind innovative technological adoption!

I believe the DOL ruling may make “goals-based wealth management” - the ever-talked about, always-future goal of the industry -- a reality.

Who benefits from this new rule?

The new rule requires that any financial advisor who advises clients on retirements accounts -- think 401(k)’s and IRA’s -- to act as a fiduciary, raising the standard from suitability. The difference between fiduciary duty and suitability may not be top of mind for most of us -- but it should be.

Why? Effectively, the change means that all financial advice needs to be in the client’s best interest versus being suitable for them based on their income, net worth, investment objectives, risk tolerance, and investments. Those sound similar but in practice can be very different, and it all comes down to transparency of fees and compensation.

Under suitability, a broker or advisor could recommend a higher fee fund (potentially a fund that provides them a kickback) that is suitable from an investment perspective, but not necessarily in the client’s best interest.

Suitability is a hard to define standard in practice -- most clients, for example, don’t know their risk threshold until they reach it. In addition, suitability does not address transparency or fee disclosures. The fiduciary standard, in contrast, requires full transparency and disclosure of fees.

Technology will scale acting in the client's "best interest"

The question then becomes, how are brokers and advisors going to act in someone’s best interest unless they know what those interests or goals are? And if they know what the best interests and goals of the clients are, how are they going to demonstrate that their recommendations match the interests of the client?

In my view, technology has to be involved in order to move forward. 

Specifically, the combination of technology that allows the advisor to see a full view of the client’s investment holdings, technology that captures the profile and goals of the client, technology that enables the client to understand their progress towards goals, and lastly, technology that provides the advisor with an auditable and traceable trail as to how the investment strategy matches the client’s plan. 

Ultimately, this will be a combination of technology at the intersection of data aggregation, robust portfolio management and financial planning tools, CRM, and natural language generation reporting tools. It is an exciting worldview, one in which the individual investor wins.


Click below to learn more about how our advanced natural language generation platform, Quill, can help you enhance and scale client service:

Quill for Wealth Management Demo

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