The latest confirmation of commitment to expanding fiduciary services for retirement plan staff and clients—come what may concerning the formal Department of Labor (DOL) rulemaking effort—was shared with PLANADVISER by Envestnet.
As the firm observes, the Trump administration has issued a memo to all federal departments and agencies to “freeze indefinitely rulemakings not yet finalized and to delay by 60 days implementation of those rules finalized but not yet implemented.”
James Lumberg, executive vice president of Envestnet, suggests this may very well be taken to include the DOL fiduciary rule, “which raises an important question for advisers: Should they pursue a business model that responds to the digital, demographic and economic pressures reshaping it, or breathe a sigh of relief and return to business as usual?”
Despite the anticipated delay, Lumberg says that financial advisers and enterprises have opportunities to “provide a fiduciary standard of advice that clients are increasingly expecting.” At Envestnet, this includes “remaining committed to technology enhancement and empowering advisers to capitalize on the fiduciary opportunity and to foster more engaged relationships with clients,” he says.
Lumberg observes that Envestnet is very clearly seeing “massive market and consumer forces” that are reshaping the way advice is being delivered.
“Investors increasingly expect that advisers will act in their best interest,” Lumberg continues. “There is a great deal of momentum behind implementing a broader fiduciary standard [regardless of what happens next with DOL]. Aside from evolving regulatory requirements, other market and consumer pressures such as growing client demands for fee transparency, the rise of digital-advice, goal-based investment planning, and product innovations all contribute to an anticipated shift in how advisers of the future will run their businesses.”
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Lumberg explains the approach Envestnet will take in this environment as being comprised of several main components; other firms, naturally, will take different approaches depending on their historical positioning and unique outlook.
First, Envestnet suggests the client relationship must be built around a “best interest assessment.” As the firm explains, “determining the client's best interest requires a comprehensive understanding of their financial situation, objectives, and long-term goals.” The firm urges advisers to “leverage integrated tools with aggregated account data that enables them to assess client needs and determine solutions that are in their clients' best interest, accelerate the on-boarding process and streamline workflows.”
Envestnet plans to also leverage enhanced outsourced chief investment officer (CIO) support, delivered to enterprises and advisers, to help develop compliant investment portfolios and programs for both managed and transactional accounts.
Further, there must be a continued focus on account documents and disclosures—and this will be doubly true if the final DOL rule is actually implemented. According to Envestnet, advisers will benefit by adopting tools to help with best interest contract provisions and disclosures; investment product and administration expense analyses; fee rationalization illustrations; new account documentation and retention; and so on.
Finally, in the marketplace of tomorrow, data management and analytics will be supremely important in a variety of contexts, Envestnet suggests. Thus, it will be vital for firms to “deliver efficient and timely visibility into all the investment products in service at an enterprise.”