The burning issue for the mutual fund industry is whether the Trump administration will curtail or rescind the Department of Labor’s fiduciary rule. The nomination of Andrew Puzder for Labor Secretary, who is anti-regulation, could mean changes to the fiduciary rule as it currently stands. While it’s meant to remedy conflicts of interest in the provision of commission-based retirement products, opponents fear it could lead to advisors to abandon mass-market clients.
But even if the fiduciary rule is changed drastically or altogether killed, it’s unlikely to stop the trend away from commissions towards fee-based advice, which offers more predictable revenues. Taking the lead from Bank of America Merrill Lynch and JP Morgan, the investment industry looks set to honor the spirit of the rule. And that means that the relationship between mutual funds and the firms that distribute their products has changed forever.
Come what may, distributors are going to build on the already sizable investments they have made in technology to address the fiduciary rule. If financial advisors are going to legitimately compete with the Betterment’s of the world, long-term, costs have to come down. Advances in data and analytics, and the potential for meaningful cost-savings, are driving radical improvements in back- and middle-office processes. And asset managers have no choice but to respond.
The effort to comply with regulators has exposed a lack of nimbleness, scalability and interoperability in the back-office that asset managers need to address. Though oversight of distribution partners has become a business-critical mission, established oversight programs are still largely managed through archaic manual processes. Oversight teams typically have to pull in data and documentation from numerous organizational silos, as well as complex datasets received from their counterparties.
To manage their distribution relationships, asset managers are looking for a complete, dynamic and automated solution – one which will provide them with the technology to bring all of their discrete systems together, provide them with better analytics and ultimately improve operational efficiency. Through a centralized approach, and by automating manual processes, the industry can drastically reduce compliance costs and become more adaptable. For example, notifying distributors of corporate actions used to take days, it can now be done instantaneously, with both counterparties seeing the changes in real time.
Change is inevitable, in an increasingly complex, data-driven world. Regulators are set to turn their focus to the broader investment market, as well as liquidity management and stress testing. So now’s the time for the mutual fund industry to pro-actively put the technology in place that will give it the tools and agility to satisfy the evolving demands of regulators, counterparties and investors. It calls for nothing less than a true digital revolution in the back-office.
Delta Data is here to help you understand how the changes affect your business and prepare. Contact us today to learn more about keeping ahead of the change.