Soon, fund managers and investment advisors are going to have to worry about how federal agencies interpret the fiduciary standard that will govern the advice they give to clients, now that President Obama has signed Wall Street reform legislation.
But MetLife has not been waiting around to figure out how to define and automate the process of making sure its representatives adhere to the current "suitability" standard that governs advice given to customers on investments to make.
Instead, the financial services firm, based in New York, has taken an algorithmic approach to define what investments are suitable for different investors. Then, it has embedded the logic into interactive documents. Once completed, a match is made and the "suitability standard" upheld, almost automatically.
In this year's Money Management Executive 2010 Fund Operations Awards, MetLife and PNC jointly won third place for Innovation in Customer Service.
"Based on a client's time horizon, based on their investment objectives, based on their risk tolerance-that's where the algorithm would kick in and, based on a set of rules, only certain models would appear to be appropriate for that particular individual," said Bob Begun, vice president and chief operating officer for MetLife's broker-dealer group.
The application is known as MetLife Fund Management Services (FMS), an automated platform for providing advice economically to investors with as little as $10,000 to put in an account.
To achieve this, more than 100 basic suitability rules are built into the form.
A similar tack could be taken with the "fiduciary standard."
The model has been so embraced by financial advisers that assets in FMS have grown by $160 million this year, surpassing MetLife's target of $95 million. All told, $200 million now sits in 7,000 accounts.
The platform was built using an application development program MetLife calls eApp. eApp streamlines the process of creating new accounts or adding products to an account by electronically warehousing a copy of every form that an adviser could need.
Because it's interactive, the adviser does not need to print out the form. In fact, the printed copy won't work. The code that guides the adviser and the customer are embedded in the form.
The agent also does not need to print out a copy to get the customer's signature. To capture that, the representative uses a small electronic tablet that attaches to the USB port of a computer.
The forms are built using an advanced version of Adobe Systems software to create interactive versions of "PDFs." The server-based software, known as Adobe LiveCycle Enterprise Suite, allows companies to capture all required data, make sure it's correct and then sent on for processing by other applications.
In the case of a new customer wanting to open an Individual Retirement Account, for instance, the adviser would order a "foundational form" for setting up a relationship with FMS, a second form to activate the IRA, some related required documents and some optional documents, such as a form needed to allow the writing of checks off the account.
Forms get pulled out of the repository, stitched together and stamped with a unique identification code. The same forms can't be used again for another purpose or another customer.
Some aspects of filling out forms are made easier. For a new customer, it's only necessary to enter name, address and Social Security number once. The basic information gets replicated throughout all forms, as needed. If an existing customer, forms come prepopulated with that and other information already captured.
"Every step of the way, we have this logic built in," Begun said.
Most important, perhaps, is the system's equivalent of a "validate" button. This makes sure all fields get filled out, no box forgotten. The process doesn't get stopped in its tracks, later on, for lack of an employer's address.
For the adviser, this makes it easier to focus on results. "That person can spend five minutes,'' instead of 15 or 50, looking at the form and figuring out the "suitable,'' Begun said.
The electronic stitching creates custom bundles of forms. But the investment approach is not customized. There are only five investor profiles that any customer gets slotted into.
"Depending on your risk tolerance and your time horizon, you will get mapped toward one of these five models,'' said Jeffrey Wilk, vice president of Broker-Dealer Investment and Advisory Product Management for MetLife.
So, if the customer fits into a conservative profile for income-producing investments, that customer's basket of investments will be split 20% into equities, 77% into fixed-income securities and 3% into cash. A person with "aggressive" objectives and great risk tolerance will get 97% equities and 3% cash. No fixed-income securities.
"It's always the same percentage in the portfolio,'' said Wilk.