With the new Department of Labor Fiduciary Disclosure Rule beginning to take effect next year, many companies want to prepare for full compliance, but are unsure where to begin. As a fixture in the financial services industry, DocuSign works with more than 90% of the top financial services institutions, and can help companies become — and stay — compliant.
Together with Joel Bruckenstein of T3, and Mike Sisk of American Banker, Miles Kelly, DocuSign’s VP of Product Marketing, and Sougata Datta, DocuSign’s Head of Strategy for Financial Services, collaborated on a webinar that provides real answers on how to navigate the new DOL Fiduciary Disclosure Rule and remain fully compliant in 2017 and beyond. Take a peek at some of the highlights below, or view the webinar in its entirety here.
Audience poll: How prepared are you?
On April 10, 2017, all financial service professionals providing advice on retirement accounts will become fiduciaries, and on January 1, 2018, the new rule becomes fully effective. With these changes on the horizon, we asked the 200+ attendees, “How would you rate your company’s current level of DOL Fiduciary rule readiness? In an even split, 45.7% were still investigating the potential impact of the rule, while 45.7% were educated, and currently preparing solutions. (The remainder was split between 1.5% not prepared, and 6.7% compliant and ready.)
Running Start: The Impact of a Digital Transformation
According to the recent MIT Sloan and Capgemini report, “The Digital Advantage,” companies that rank high on digital maturity have 13% more revenue, are 50% more profitable, and have a 19% higher market valuation. However, standardizing on DocuSign is equally valuable from a compliance standpoint. “From a compliance officer’s perspective, it’s a goldmine,” Kelly explained. “It’s absolute proof on who did what, when, and where.”
One of the major impacts of the ruling will be a further reduction in commissions. “There’s a clear trend out there that the commission business is shrinking,” said Bruckenstein. “It was happening, actually, before DoL was finalized…In my opinion, what you’re seeing now is an acceleration of a trend that was already in place,” he continued. While commissions comprised 36% of revenue for non-Fee only RIA firms in the first half of 2016, that number is projected to drop to 23% post-DoL. Asset-based fees are expected to climb from 52% during the first half of 2016 to 62% post-DoL. Commission-based only IBD’s were receiving 50% of their business from commissions as recently as 2015. That rate dropped to 48% in the first half of 2016, and is projected to go down to 35% post-DoL.
“Obviously there’s going to be some changes to existing accounts. Some commission-based accounts will shift to fees,” said Bruckenstein. “You’ll likely get a BIC exemption for the rest. Both situations will require additional paperwork. And both will likely require new workflows as well.”
The solution to the new paperwork and workflows? A fast, efficient, highly-automated solution. “I think we can all agree there’s no way to efficiently generate the paperwork that will be necessary without an automated straight-through processing and digital signature solution.”
He also advised that when looking at DoL, to consider the “Three D’s”: Discover, Disclose, and Document. Before making a fiduciary recommendation, gather information. “You need to evaluate that the client’s investments are in their best interest and that you are compliant with the BIC regulation,” said Bruckenstein.
“Then you need to disclose,” he continued. “It’s not enough just to execute a BIC or an advisory agreement. You need to make the proper disclosures. If you can’t confirm the investments you’re recommending are in your client’s best interest, you need to stop and determine the next steps. Once you know, you can register advice and variable compensation is permitted under BIC. An often forgotten step is that you need to periodically review whether any info is changed before new advice is rendered.”
Finally, documentation takes place. It’s important to get the client to sign off on everything — for which Bruckenstein recommends a digital solution: “You need to be able to show that the client has signed the BIC. There are different forms of documentation but I would argue that the best is an electronic signature,” he said.
Datta stressed that while the DoL rule is not one-size-fits-all, it will still “require a significantly higher level of account and transaction-related disclosures.”
He also noted that the results of the webinar audience poll were insightful in their representation of where the industry stands in terms of impact assessment. Some of the most important questions being asked are:
- What are the initial interpretations of the rule?
- How does it impact the firm and its business?
- What are the potential business impacts in terms of moving from a commission-based structure to a fee-based structure?
In regards to the 3 D’s, DocuSign comes in for the purposes of disclosing and documenting:
“We would come in as delivering that [requirement] on a digital basis on a digital platform to the end-investor and having a necessary audit and compliance trail that meets DoL requirements.”
Datta also pointed out that while DocuSign helps companies become and stay compliant, there’s an additional, large benefit: “The hard dollar savings and productivity enhancement from doing this digitally is significant. [There are] no printing costs, mailing costs. You have people on board at call centers ready to make sure the disclosure got signed. Right now [with] some of these manual processes people are basically faxing and scanning these documents for record-keeping and retention. [With DocuSign] you have a fully digital audit and compliance trail,” said Datta.
So how should companies get ready for compliance with the DOL ruling? Miles Kelly revealed the following five tactics during the webinar, straight from a high-profile financial services committee specifically focused on the DoL requirements. Leveraging these tips on top of a digitally-transformed workflow will help provide even more assurance that your company is prepared for the DOL Fiduciary Disclosure rule.
- DoL Solutions: One size DOES NOT fit all
“As many of you know in your journey to comply, there is no such thing as a single DoL solution,” says Kelly. “You can’t buy it off the shelf. It will very much come down to an interpretation by your institution. While you can gather good insight, there is no one-size-fits-all. Recognize there is no single answer,” said Kelly.
- Get educated – leverage your peers
“This webinar is a great informational session for you to get educated,” said Kelly. “Make sure you leverage your peers. While you’re often competing with one another as it relates to these compliance requirements there are lots of opportunities to share best practices. You can even leverage DocuSign as a way to get access to some of those insights.”
- Establish governance
“Another piece that came straight from the group is a governance model,” continued Kelly. “This is not a compliance office responsibility. It is something that your organization needs to come together and govern. That is definitely a requirement for a cross-functional group. A governance model is something you’ll want to establish if you haven’t already.”
- Start small (quick wins)
“[There were] lots of quick win recommendations from our DoL committee,” said Kelly. “Start small. Find ways to get the ball moving. Don’t try to boil the ocean.”
- Communicate and refine.
“It’s a cycle back-through as is the case when you’re doing anything that’s new. That’s a key recommendation,” said Kelly.
Rapid Time to Market:
“Every transaction under that BIC exemption has to have a transaction-related disclosure accompanying it,” said Datta. “DocuSign is one of the best ways to do that. It’s a ready, go-to-market solution. We can get you up and running really quickly. It’s also aligned with the overall objective of digitization.”
Alignment with Strategic Objectives:
“Something like 50% of the world’s wealth is going to be transferred to the millennial generation over the next two decades,” said Datta. “That’s what the estimate is from McKinsey and other consulting firms. Given that, and the preference for the digital tools and digital experience among the millennial generation, this is a strategic driving imperative. Obviously this would be an opportunity for firms to basically take a leap in that direction.”
Q & A Session
Following their presentations, Datta, Kelly, and Bruckenstein answered questions from the audience, including:
“What about clients that don’t want to use electronic sign-off?”
“That’s a great question,” said Kelly. “In general, particularly as we look at modern banking, there’s definitely a hesitance in some cases for certain industries like financial services to embrace technology. I can understand that. But what I would recommend is, even if you’re technically challenged, giving it a shot on a small portion of your transactions to build that confidence and strengthen that muscle, because this is where the industry is moving. I can tell you there’s definitely a positive there. The time is now to put your toe in the water.”
“Working as a consultant for a number of firms shows that a lot of this has to do with client education,” added Bruckenstein. “Virtually every firm that I’ve worked with that said ‘Hey, my clients have no interest in digital,’ — if they put a major educational program in place and provided the proper incentives, you’re not going to get 100% buy-in, but you’d be surprised how high that number can go. Over time, as your demographic changes, anybody new coming in, the millennials for example, would be extremely upset if you didn’t have a digital solution — let’s put it that way.”
Which federal regulator will enforce and examine the DoL rules?
“The DoL has very limited enforcement staff,” said Bruckenstein. “What they did with the rule was they basically deputized every attorney in the United States to enforce the rule. What we think is going to happen is that the actual enforcement of the DoL is going to come from plaintiff’s attorneys. And we know for a fact that there’s already a lot of attorneys queueing up.”
What is the cost of non-compliance?
“The cost of non-compliance is you’re going to get sued,” said Bruckenstein. “Depending on how egregious the violations are, if you’re not in compliance, the cost could be not so big, or very great. I would argue that the same people who are well known for suing under the asbestos cases and the cigarette cases are the same kind of people that your law firm is going to be dealing with. And I probably would not want to take that chance.”
Bruckenstein also noted the competitive advantages of compliance, adding, “Some of the largest firms in the industry have already invested multi-million dollars in putting together DoL compliant solutions. There’s absolutely no reason for them to hesitate to put those solutions into play by April. If they are claiming to be fiduciaries for retirement accounts, and you are not, I would argue that puts you at a major competitive disadvantage. Whether the rule sticks or not, the best practices going forward are going to be well-aligned with what the DoL has already published.”
Want to learn more?
We at DocuSign would like to help you become and remain compliant in time for the 2017 deadline. If you’re interested in our assistance guiding you through your journey to full and lasting DoL Fiduciary Disclosure Rule compliance, you can view the full webinar “5 Ways to Stay Compliant with the New DOL Fiduciary Disclosure Rule” here, or read the complimentary white paper “Get Compliant and Stay Compliant with Department of Labor (DOL) “Final Rule” Fiduciary Regulations.”