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Selling regulation tech tools? Be mindful of upsetting advisors

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There's definitely a market for digital tools to help advisors navigate expected fiduciary requirements.

But providers should tread carefully with their approach, as contemplating regulation-oriented tech upgrades drudges up bad feelings among some advisors about the rule.

"What sounds to be an ideal situation for the RIA community -- holding BDs and anyone sells commission-based products accountable -- the details of how it's going to be implemented are a disaster," says David Koshinski, CEO of Decatur, Il.-based IPI Wealth Management.

"You really can't say, 'I subscribe to this software, so I'm definitely protected.' The only way you'll know you're absolutely protected is each time you're challenged on policies or the [best interest contract exemption] around the rule."

Salesforce is the latest firm to offer new document features in its cloud-based CRM solution aimed at helping advisors increase their ability to be transparent and accountable.

Called Salesforce Shield, the features include allowing for documents going through the CRM to be recorded and reviewed, as well as logging access to records, creating virtual paper trails for easy audits.

"There's a lot of change going on around the DoL rule," says Rohit Mahna, general manager of Salesforce Financial Services. "It was clear it was expanding this notion what a fiduciary is. We felt it was a great opportunity for us to be part of the solution."

Mahna says cloud-based CRMs are the perfect platform for advisors seeking to enhance their compliance efforts, since records get stored in a centralized data location, allowing "much more standardization and visibility."

Other CRM providers have made similar pitches, in light of the DoL rule.

"The CRM is where their clients' information is documented," says David Mehlhorn, director of sales at Redtail Technology. "They can show the conversations they have had with their clients. They can document the investment objectives that their clients have. The need to formalize processes or workflows for the advice process becomes essential in making sure an advisor is meeting the new regulatory requirements.

"Advisors that were already using technology in their practices and had formalized processes should be able to adapt quickly. Advisors not using a CRM and limited on their use of technology will face new challenges of showing the proof that they are acting in the clients' best interests."

Advisors and firms are taking heed of such advice, but many cite the uncertainty still surrounding the rule -- it won't become required until April 2017 -- as one reason why they're not committing to specific upgrades just yet.

"We're trying to get ahead of the curve of the final regulations," says Tony Fiorillo, president of Asset Management Strategies, an RIA based in Fishers, In.

"We've used Salesforce for the past seven years, so it's easy for us to adapt what they are adding, and we'll definitely look at probably using it. At this point, though, we're trying to digest what the final regulations are going to look like. It's still very fluid."

Fiorillo says for the wealth management industry at large, solutions are not obvious right now. There are still lingering bad feelings about costs of increased regulation being passed on, he adds.

"This is exactly the worst thing to happen to a consumer," he says. "We've told our advisors, that debate is over. How do we now create an opportunity out of a very unfortunate situation for the consumer?"

Joel Bruckenstein, co-creator of the Technology Tools for Today conference series and technology guides for advisors, points out fee-only advisors have always followed such documentation guidelines, and document management software have always offered the functions that CRMs are touting.

For an advisor that has to implement new practices and technology, it's better to improve than focus on costs, Bruckenstein says.

"Clearly there are upfront costs of doing so," Bruckenstein says. "But the alternative is not to automate it and do it manually, which is more expensive."

The urgency will continue to grow for firms to add compliance tech, says Tim Welsh, president of consulting firm Nexus Strategies, as it takes time to map out the requirements, turn them into processes and then automate them.

"RIAs will just have to tweak what they are doing to document conversations around IRA rollovers, making a few notes in their CRM and archiving everything, while IBDs will have to do a complete overhaul of their systems and processes," Welsh says. "IBDs should be on red alert and in the throes of system redesign now, as it will take months to get it right."

Koshinski of IPI Wealth Management says he hasn't surveyed all the regulation tech solutions available in the market yet, but expects closer to next April "a flood of those offerings."

What he has witnessed, though, is the concern among insurance agents and BDs about their careers.

"Fee-only RIAs got off the easiest at the end of the day," he says. "I don’t like government regulation that can sever that many peoples' ability to make a livelihood."

Regulatory product pitches should also keep in mind the real impact that the rule will have on the independent space, in particular on smaller firms, says Michael Bilotta, managing director at advisory consulting firm Gladstone Associates.

"An increasingly complex regulatory environment requires enhancing expertise and embracing digital tools," Bilotta says. "But most of the independents in the industry produce less than $1 million in revenue yearly. Now you have a spike in costs in regulation tech. It's a double whammy."

It's another reason why regulation tool adoption will be slow until next year, Bilotta surmises.

"Tech companies should be accommodating," he says. "I'd want to be sensitive to sticker shock. It is going to have an impact on P&L."

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