BNY Mellon subsidiary Pershing LLC reports the launch of its solutions and resources to help financial services firms comply with the Department of Labor’s (DOL) Conflict of Interest rule.
Each of the solutions and resources is designed to help financial services firms address changes in the following key areas: transitioning to an advisory model, exemption compliance, supervision and surveillance.
The DOL rule is likely to impact the shift toward the advisory model— as registered reps consider the switch from a commission-based brokerage model where products are sold to investors, to fee-based advisory relationships where products are bought for investors. Pershing will launch the following new advisory capabilities to assist with this transition:
New mutual fund and/ETF wrap solutions designed to serve emerging investors. Pershing clients will be able to access expanded managed account solutions to help them serve a broad spectrum of investors from emerging to mass affluent investors. The solutions feature mutual fund/exchange traded fund (ETF) models from industry leading firms designed to provide a diversified risk-based portfolio with lower account minimums.
Enhanced versions of Pershing’s practice management materials supporting the shift to advisory will be available. Pershing also plans to roll out third-party tools to facilitate conversations between registered reps and their clients on transitioning accounts. Pershing says it is currently examining planning tools and other resources that advisers may use to help with the transition of client accounts where appropriate.
Prohibited Transaction Exemption Compliance
The industry will have to adapt to new compliance realities and the nuances of prohibited transaction exemptions, which allow firms and advisers to be compensated if certain conditions are met. In response, Pershing is developing solutions to help firms and registered reps who determine that compliance with the new Best Interest Contract Exemption (BIC) is warranted. The solutions will be designed to facilitate end-to-end compliance— from creating contracts and disclosures to record-keeping. Pershing is also developing programs for broker-dealers to manage contracts, disclosure and controls to support their compliance needs.
Supervision and Surveillance
As a condition of the BIC exemption, firms and registered reps will need to adhere to the Impartial Conduct Standards, which includes using prudence when delivering investment advice. In light of the prudence standard, Pershing expects that there will be a greater need for surveillance and supervision to achieve compliance and document evidence of it. Pershing says it is in the process of determining which reporting packages and workflows need to be created for firms to ensure their advisers are compliant. Pershing is also examining enhancements to allow firms to supervise and surveil assets on their platform.