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Don’t fear life under fiduciary rule, say Pershing and Morningstar

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SAN DIEGO — Complying with the fiduciary rule on a day-to-day basis will not force broker-dealers into a rigid, unworkable model, according to experts from Pershing and Morningstar.

Firms aiming to use the best interest contract exemption to keep offering commission-based accounts have slammed the regulation in letters to the Department of Labor. Uncertainty surrounds the rule, even after DoL Secretary Alexander Acosta announced it would go into effect following a delay.

Executives with Pershing and Morningstar acknowledged in a panel Thursday at the Pershing Insite conference that some questions and criticisms are valid. Yet BD’s currently tangling with compliance should know that firms need not approach the rule in exactly the same way, the experts said.

“We often get asked in the client engagements — and we’ve done literally thousands of these over the last year plus — we’ll often get the question, ‘Does that sound good?’ And my response is, ‘Definitely, maybe,’” Jeff Schwantz, head of client solutions at Morningstar, said to laughter.

“It’s so different, there’s no perfect answer, and you’ll hear that as a recurring theme. There’s not perfect. It’s prudent. And that’s the opportunity that I think we all have to try to figure out is, what’s that mean for us in our organization and our practices?”

Wirehouses, broker-dealers and banks unveiled client-friendly policies while asking the agency for further delays.
June 8

Schwantz compared the documentation requirements under the rule to third grade math, when teachers instructed pupils to show their work.

Pershing, a giant custodian with $1.6 trillion in client assets, and Morningstar, the global investment research firm, have combined on services helping firms’ DoL rule compliance. The custodian hinted at such efforts at last year’s conference, and the firm rolled them out on its NetX360 platform.

The platform now includes enhanced documentation, tailored rollover capabilities and, with Morningstar, a fiduciary tools menu, said Hans Schemmel, Pershing’s director of individual retirement products. BD’s already invested in significant changes to their compensation and offerings, he noted.

“Now you get to the operational point of view and some of that’s, I don’t want to say ‘easy,’ but it’s very prescriptive. You know what to do,” Schemmel said. “A lot of the things that Pershing is providing to our clients is very customizeable to our broker-dealers, how they want to create their structures.”

The DoL itself embraced such flexibility, outlining it in guidance on the transition until the full implementation date of Jan. 1. Firms only need to figure out how they will show that they acted in a client’s best interest, and many methods will work, said Pershing managing counsel Tonia Bottoms.

“The true wrong answer is to be doing nothing,” Bottoms said. “So there’s probably not one right right answer, but the wrong answer is to be doing nothing.”

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