If you are looking for the top trends in wealth management technology today, then look no further than the annual Technology Tools for Today (T3) Enterprise conference. Targeting executives at the largest RIAs and independent broker dealers, T3 Enterprise is truly a showcase for what the technology community is developing to help these larger firms navigate the complexities, new competition, and changing compliance requirements for the industry.
Held in Las Vegas last week and put on by industry technology guru Joel Bruckenstein, 250 wealth management technology execs gathered for educational sessions, key note addresses, and networking opportunities to learn the latest.
Top of the list were the many sides that the Department of Labor’s new best interest rule will change the firm-advisor-client relationship and what will be necessary to comply. Particularly now that we have seen major firms choose different strategies, such as Merrill Lynch and Commonwealth banning commissions from retirement accounts, while Morgan Stanley and Ameriprise will allow commissions in their clients’ retirement accounts.
The majority of presenters from the technology, compliance, and firm sides agreed that no matter what your strategy, the new rule will require further documentation of client interactions, added workflow steps in the new account opening process, and an ongoing duty to supervise, surveil, and report, on demand, to prove compliance.
“The organizing principals for following the DOL rule can be summed up into three words: notify, satisfy, document,” said Brian Hamburger, CEO at MarketCounsel, an industry leading compliance consulting firm. “Firms need to notify their clients that they are acting as a fiduciary in specific communications, satisfy that commissions and prohibited transactions are managed via the best interest contract (BIC) exemption, and document all aspects of their client interactions for future audit.”
In order to do this, Hamburger noted that technology would be the key enabler for firms to be able to manage these issues. “Having integrated systems will be very important in this new environment.”
Cybersecurity also continues to be a top issue for firms and it is clear that most advisory firms are not prepared. Dan Skiles, President of fast-growing custodian Shareholders Service Group (SSG), advised firms that they should conduct regular penetration tests by a third party security firm to identify problem areas and generate reports documenting the firm’s focus on protecting client information.
“You never know where your weakest link is going to be,” Skiles said. “And oftentimes it comes down to your front-line employees and even your clients who need to be better educated as to what things they should and shouldn’t do.”
The other trending topic at T3 was a renewed focus by the industry on assessing client risk tolerance, particularly in light of the entrance of new robo advisors. Multiple panel discussions and presentations focused on the weakness of the investment process that generates asset allocation investment models for clients based simply on the results of a questionnaire.
What is needed is a much more robust process that can identify and document when a client’s answers to these questions conflict or are incomplete, industry consultants all agreed. With a much more rigorous approach required in a post-DOL world, panelists suggested that the early robo advisors will need to upgrade their process and approach, else risk falling afoul of not acting in their clients’ best interest based on a basic risk analysis review.
To learn more about what went on at the 2016 T3 Enterprise conference, check out the many tweets on the #T32106 hashtag on Twitter.
In the meantime, the T3 series of Enterprise and Advisor conferences continues to be the gathering place for all things wealth management technology. SS&C Advent will be an exhibitor and sponsor at the upcoming T3 Advisor conference to be held February 14-17, 2017 in Garden Grove, CA.
Timothy D. Welsh, CFP® is President and founder of Nexus Strategy, LLC, a leading consulting firm to the wealth management industry, and periodically blogs for Advent’s On Point blog. He can be reached at firstname.lastname@example.org or on Twitter@NexusStrategy.