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7/23/2019 Why a culture of compliance is critical
https://www.investmentnews.com/article/20190719/BLOG09/190719907/why-a-culture-of-compliance-is-critical 1/7
Why a culture of compliance iscriticalIn an age of heightened consumer demand for �duciary advice,retaining assets and protecting your �rm are complementary strategies
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Jul 19, 2019 @ 12:18 pmBy Steve Gresham and KevinJ. Ruth
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The financial industry's reputation was hit broadside bythe financial crisis, eroding trust and opening the doorfor new industry players offering transparency,convenient service models and lower fees. We remainin a general environment of distrust.
Regulators haveattempted toaddress this lossof trust withproposals that sethigher standardsof conduct forcompanies and
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advisers. Theseefforts are especially timely, given the industry's agingclient base that will require even greater care in thecoming decades. The SEC's reform actions alreadyface challenges from consumer groups determined tostrengthen the standards at both federal and statelevels. Some financial advisors support a fiduciarystandard they believe will strengthen their industry'scredibility and value. The more than 80,000 CFPprofessionals must incorporate the �duciary dutywhen providing financial advice into their practicesnext year. States will continue adopting their ownfiduciary standards. Will some advice firms really leavethose states as a result?
We are already aboard a moving train to higherstandards and the expectations of fiduciary care byfinancial advisers. Lost in the scramble to challengethe new proposals and avoid the costs of systemschanges needed to comply with their requirements isthe rising tide of "consumerism." Consumersunderstand a fiduciary standard of care for themanagement of their assets. They might not be able todescribe it using the arcane language of the financialservices industry, but they have a pretty good idea ofwhat a good adviser should do. Disruptors listening tothose clients have consistently driven downtransaction costs and increased investor choices —and without any pressure from lawmakers. A quicksurvey of asset flows over the past 10 years prettymuch tells the story of how consumer demand haschanged the landscape. Clients vote with their dollarsand the "winners" bring innovation in product features,convenience or pricing, while the "losers" try to hang onto their legacy game plans.
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The marketplace paces innovation while regulatoryefforts mostly lag trying to fix rule flaws or stop badactors. But much of the current regulatory activity haspicked up on the demands of a more educatedinvesting public and is at some level advocating aspolicy what many consumers already enjoy — a highstandard of suitability, loyalty, care and service fromtheir financial adviser.
Advice industry leaders now have the opportunity todefine "best interest" and choose the standard of carethey will provide clients, but there are challenges. Thesolution is a bit of a Rubik's cube, given the variety ofclient preferences and the range of digital and humanadvice capabilities. There are important perspectivesabout the cheapest solutions, the richest benefits, anddifferent service platforms for different types ofclients. Technology use varies widely. The greatesthurdle of all may be the record results from a historicbull market. All these friction points slow the wheel ofchange.
We think culture leads the way. Culture is the primaryrole of good organizational leadership. Create the rightculture and it attracts the right professionals and theright clients. Leading in the future means establishingtrust with our clients, moving to the highest standards,and providing the best advice, best products and bestrelationships possible. We will need to make it easierand more convenient to manage a household, multiplegenerations and multiple accounts. We will have toeducate new clients and care better for older clients.Our best guides for our best efforts will be our bestclients and our best advisers. Establishing a "culture ofcompliance" is a concept offered by the Financial
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Industry Regulatory Authority Inc. that recognizes acompany's efforts to serve clients' best interests, but itestablishes only the baseline of client expectations.
High standards have costs. An unavoidable issuefacing the advice industry is that too many "advisers"do not meet the professional standards exemplified byour best professionals and expected by our bestclients. Another challenge is the scale of some servicemodels in which the best clients get top notchattention and others never hear from anyone. Greattechnology exists to improve customer service, butleadership is required to drive adoption. Taxes are thegreatest expense paid by clients in their lifetime, andhealth determines the length and quality of life. Neithertopic gets much attention across the industry, whichoften cites concerns about liability for the failure toaddress these critical client issues. Can't we do better?The clients are waiting.
Steve Gresham is an industry consultant and the formerhead of the private client group at Fidelity Investments.He is also an advisory board member at Cogniscient Inc.and EquiFi.com. Kevin J. Ruth headed Wealth Planningand Personal Trust at Fidelity Investments and was thechief �nancial planning o�cer for Fidelity Personal andWorkplace Advisors. He is also a member of CFP BoardStandards Resource Commission.
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