Account aggregation and DOL rule compliance

June 27, 2016 by Tom Burmeister

about the author:

Tom Burmeister

Vice president, financial planning

As vice president of financial planning, Tom is an integral contributor to the strategic vision around our financial planning initiatives. Additionally, he is critically involved in all partner interactions, thought leadership contributions, and internal training programs.

The hottest topic on this year’s financial advisor conference agenda has been the DOL’s fiduciary rule. Firms are ramping up for big changes in late 2016 and 2017. Ameriprise Financial stated they currently have roughly 400 employees dedicated to the fiduciary rule with plans to increase training firm-wide.

Regulatory compliance through account aggregation

Account aggregation will play a major role in fiduciary rule compliance for several reasons. One of the cornerstones of the DOL rule involves an examination of a client’s entire financial picture when delivering advice. By utilizing account aggregation tools to import held-away accounts, advisors can more easily make the case that the financial plan of a client takes all factors into account.

Similarly, for product sales such as life insurance and annuities, account aggregation provides a more efficient medium for advisors to determine whether or not a specific product aligns with the best interest of a client.

In the past, financial advisors struggled to gain transparency into their clients’ employer sponsored retirement plans. Because employer-sponsored 401(k) plans have limited investment options, the only way for advisors to understand these choices was to log in to a client’s account to view them. This triggers the SEC’s “Custody Rule” and triggers fiduciary responsibility for the advisor.

As John Michel pointed out, with advances in account aggregation allowing advisors to view both holdings and investment options, “the advisor now can give fiduciary level advice without taking custody.” Michel outlines this concept through this great example:

“Fidelity states that for employees in a 401(k) plan for 10 years or more, the average balance is $251,600. If an adviser with 100 high-net-worth clients adds 401(k) advisory services for 20 percent of them, these 20 clients will create over $5 million in additional advisory assets. If the adviser charges one percent for this service, his or her revenue will increase by over $50,000 without adding one new client.”

Aggregation still catching on with advisors

While account aggregation has steadily gained momentum with advisors, recent studies show they still have a long way to go. A recent survey of financial advisors revealed that only about half of advisors use aggregation for more than 50 percent of their client base.

This is concerning, not only for the regulatory compliance reasons discussed above, but also given client demand for these services. According to a recent study, 76 percent of investors reported that the ability to gain a holistic view of their financial life was a primary factor in their choice of financial advisor.

One of the biggest selling points for account aggregation has been its ability to cut down on the time advisors spend on manual data entry in the financial planning process. However, not all advisors necessarily agree with that premise. Aite Group found that advisors believe account aggregation was too much additional work for both themselves and their staff and added more time to the overall financial planning process.

While this may have been the case in the past, account aggregation has made great strides with user interface enhancements and data quality that should help bridge the gap. In short, look for account aggregation to continue its steady growth in the financial services industry.

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