Are Big Changes Coming For Brokers, Advisers?

The basic roles and responsibilities of brokers, financial advisers and asset managers are in the early stages of what's sure to be a dramatic transition and the brokers and firms that are most adapt at adding new tools and technology will be the ones to prosper, according to a new report from Boston-based financial services consulting firm Financial Research Corp.In the wake of the SEC's reaction to the Dodd-Frank Wall Street Reform Act, the FRC is advising financial services firms to begin rethinking the way they and their staff of advisers and brokers define themselves and the services they provide to investors.

In January, the SEC issued a report calling for a uniform fiduciary standard for all financial advisors, brokers and investment firms that essentially requires all to act in the best interests of the retail customer first regardless of the investment strategy being pursued by the broker-dealer of individual investment professional.

"Going forward, brokers will be operating under a more stringent fiduciary standard of care," FRC Chairman Bob Hedges said in the report. "Rather than advice being incidental to trade execution, trade execution will be incidental to advice."

This shift in priorities and the expected new requirements calling for advisors, brokers and their firms to accurately record and store all communication with their clients means firms will have to ramp up their IT spending to implement the tools needed to gather and store client data from a variety of existing trading and administrative applications.

The FRC report, which focused on the SEC's study as well other industry regulations, regulatory hearings and court decisions, also found that financial services firms will need to modify their business models, organizational processes and product development and marketing practices to ensure all brokers and advisors are able to provide products and advice that keep them well within the boundaries of new compliance standards.

"Brokers, in their new role as adviser, will be addressing investment and administrative values such as risk, return and cost structure on behalf of the customer and not just selling investment products," said Stephen Winks, the report's author. "That's not required today. This has industry-wide implications."

While the financial services industry awaits specific guidelines, recommendations and new rules from the SEC, most are voluntarily overhauling both their investment and advisory practices and their IT systems in anticipation of new regulations.

FRC analysts said new technology]based information tools capable of tracking and reporting on an ever-expanding number of investment portfolios will be crucial for operating under the new rules. The upside, from an advisor standpoint, is that many will be able to expand their sphere of influence beyond traditional retirement planning and saving programs to serve different types of investors.

"In parallel with the changing role of the broker, asset managers have the opportunity to provide solutions that go beyond packaged products that have been designed for today's commissioned sales environment," Winks added.