In the ongoing debate over the adoption of an industry-wide fiduciary standard, one critical element is often overlooked: the role technology may play in helping advisors meet the higher standard of acting in their investors’ best interests.

A new report by the financial services unit of Citi argues that broker-dealers likely will need far superior wealth management technology to bridge the gap between their current suitability standard and fiduciary principles. Even RIAs, who already operate as fiduciaries, may need to make significant changes to upgrade their technology to effectively deliver services in their clients' best interests, the paper suggests. In sum, the authors argue that higher levels of automation and integration of wealth management technologies may be necessary.

“We looked at how to deliver that standard,” writes one of the paper’s authors, Andrew Clipper, head of Wealth Management Services in North America for Citi's Securities and Fund Services. “What we tried to ask was, ‘What is the regulatory requirement and what would the spirit of that requirement mean?’ Through modern technology and innovation, it will be possible to meet both.”

Clipper says that many broker-dealers and RIAs will need substantial improvements in four areas of the existing IT systems in order to function effectively as fiduciaries:

1. Automatic linkage from front-to-back of an investor's information, risk profile, restrictions, proposed portfolio, portfolio execution and reporting

2. Access across all investment vehicle types within and across multiple accounts in the household

3. Household reporting and rebalancing across multiple account types (e.g., brokerage, retirement and trust accounts)

4. Tax optimization at the individual investor (tax return) level and across the household

They may sound simple enough, but in practical execution these tasks are difficult and highly manual for many practices, Clipper says. Right now, he adds, few advisors have systems that effectively perform all these tasks in one platform, across multiple task silos and across multiple custodians.

Citing just one example, Clipper says, “You can’t effectively do rebalancing unless you can aggregate accounts across multiple platforms and even institutions. The same investor might have accounts on both the trust side of an organization and on the BD side of an organization.”

It’s not uncommon for an investor to get a recommendation to buy something in one of these accounts while simultaneously selling out of the other, without sufficient attention paid to the rebalancing implications of either.

“That visibility into all of the different kinds of accounts that an investor has is an important aspect of holistic portfolio management,” he says.

Many technology firms are offering aggregated account display technologies, but Clipper says these don’t go far enough.

“The key deliverable is not being able to aggregate data and show a nice pretty statement,” he said. “The key is how do you effectively manage those assets across accounts, platforms and organizations?”

Ann Marsh writes for Financial Planning.


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