Although the U.S. Department of Labor (DOL) earlier this month put mandatory best-interest standards for the retirement savings market on hold, firms in this market still seek ways to provide greater transparency to investors. This year DTCC’s Wealth Management Services (WMS) businesses have responded by delivering an array of new features and service enhancements to facilitate disclosure and sharing of commission schedule, fee and expense data.
These offerings across Insurance & Retirement Services (I&RS), Mutual Fund Services (MF) and Alternative Investment Product (AIP) Services will help clients comply with the DOL’s pending fiduciary rule for retirement investments if it is implemented, but their value extends further, by directly addressing investors’ rising demand for more—and more detailed—information about fees they pay and expenses incurred on their investments.
“We made a commitment to ensure our clients would be prepared to meet fiduciary-related requirements in time for the target compliance date,” said Ann Bergin, DTCC Managing Director and Head of WMS. “We met all of our deadlines to launch service enhancements that help clients meet market and regulatory demands for greater data transparency.”
Meeting the fiduciary standard
The DOL fiduciary rule, originally scheduled to take effect April 10, 2017, was designed to reduce conflicts of interest in the retirement advisory business and discourage the use of high-cost, commission-based investment products. Its current provisions require any advisor providing covered investment advice to abide by a fiduciary standard—that is, make investment recommendations that are in a client’s best interests—and disclose to clients all fees, conflicts of interest and compensation from third parties related to those recommendations. Advisors choosing to offer commission-based products must adhere to a “Best Interests Contract Exemption” (BICE), which imposes additional, rigorous disclosures.
With the change of administrations in January, uncertainty clouds the fate of the rule: the DOL will delay its implementation by at least 60 days and could loosen its requirements. Nevertheless, DTCC’s related service changes and additions went live as planned on or before April 10.
“We decided not to wait for final disposition of the DOL rule,” said Bergin. “Our clients want to expand disclosures and transparency now, and we’ve delivered those capabilities.”
The changes to WMS offerings—Insurance Profile, a new I&RS repository feature for annuities carriers and distributors; enhancements to three MF services; and new codes and optional fields across AIP’s processing tools—were developed over the past year in close collaboration with industry participants.
For mutual funds, a large industry group worked intensively to identify the fiduciary-related reporting features firms need in the current business environment.
“Mutual Fund Services has a strong track record partnering with the fund industry to update our services for the retirement-savings market,” said Josephine Torelli, Executive Director, MF. “We were ahead of the curve in offering features that promote data-sharing and transparency. Our most recent enhancements are the latest iteration of these capabilities.”
Similarly, I&RS last year helped spearhead an insurance industry task force that led to creation of Insurance Profile. In their deliberations, task force members agreed on the need for a centralized repository that standardizes and automates the population and retrieval of product-level fee, expense and commission data. Task force members concurred that I&RS, as a solutions hub connecting insurance carriers, distributors and third-party providers, was well positioned to provide this industry-wide solution to bring more data transparency to investors.
Data management solution for annuities
Insurance Profile went live on April 10, after months of development and testing.
“Over 60 clients from across the industry came together in a collaborative working group to design this facility and DTCC has delivered it, on schedule,” said Barbara Smith, Executive Director, I&RS. “Insurance Profile is the only product in the annuities space to meet the need for a central hub for data exchange and clients are already using it.”
I&RS sponsored a webinar in January that addressed the challenges of collecting and disseminating fiduciary-related information and the time- and cost-saving benefits of an automated data-management tool like Insurance Profile. I&RS is also offering product demonstrations for firms interested in subscribing to the new feature.
“As the retirement-savings industry continues to evolve, our ability to readily share commission, fee and expense data will become a business differentiator that can elevate investor satisfaction,” said Amy Scott, Sr. Department Leader, Edward Jones. “We believe Insurance Profile, with its data repository and data-exchange capabilities, will give us an edge in providing the kind of service in which our clients have become accustomed.”
MF and AIP changes
Anticipating the DOL rule’s eventual implementation, many firms have shifted to an advisory model for their retirement-investment business and transformed their client accounts to advisory accounts under which fiduciary best-interest standards apply.
The MF service enhancements spelled out in Important Notice a8286 and implemented on February 27, support these moves to an advisory model. DTCC has added features to DTCC Payment aXis® Commission and Fee Settlement to support communication and settlement of levelized fee payments to advisors.
For MF’s Networking service, a number of fields have been added to provide greater transparency at the account level, allowing firms to receive information that can indicate “grandfathering” of the accounts may need to be reviewed. And MF’s Retirement Plan Reporting record layouts have been enhanced with new fields that facilitate communication of contribution and distribution amounts.
Fiduciary-related enhancements to AIP services were fairly narrow in scope, said Justin Schwartz, Executive Director, AIP. The enhancements, which became effective April 7, are detailed in Important Notice a8330. A handful of optional fields have been added to several AIP records, including Security General Profile, Position, Activity and Commission—changes that were sourced and vetted by the AIP Roundtable committee, Schwartz noted.