OPPORTUNITIES IN A NEW FIDUCIARY WORLD

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1 OPPORTUNITIES IN A NEW FIDUCIARY WORLD Navigating the Department of Labor Fiduciary Rule May 19, 2016 Hosted By:

2 OPPORTUNITIES IN A NEW FIDUCIARY WORLD Moderator: Michael Sisk Michael Sisk is a New York-based journalist who has covered business and the financial markets for 20+ years, including stints as the investor editor at Red Herring, editor-at-large at US Banker, and contributing editor at Bank Technology News. His articles have appeared in numerous publications, including American Banker, Barron's, Crain's New York Business, Inc., Institutional Investor, strategy + business and Worth. Michael has co-written and edited three books; the most recent was Merge Ahead: Mastering the Five Enduring Trends of Artful M&A (McGraw-Hill 2009). 2 Not

3 OPPORTUNITIES IN A NEW FIDUCIARY WORLD Alex Bombeck, President & Global Customer Experience Lead at North Highland Alex is the President of Sparks Grove and leads North Highland s Customer Experience Service Line as well as its Strategy and Data & Analytics teams. He brings 20 years of strategy, marketing, digital and CX experience to North Highland and Sparks Grove, including more than 10 years focusing on interactive and integrated marketing. A long-time agency executive, Alex has experience in media planning, advertising, promotion, and direct marketing. Prior to joining Sparks Grove, Alex was the Chief Digital Officer of Havas Worldwide New York and President of Havas Worldwide Digital, North America. 3 Not

4 OPPORTUNITIES IN A NEW FIDUCIARY WORLD Jill Jacques, Global Wealth Management and Retirement Lead at North Highland Jill is the Global Wealth Management and Retirement Lead with North Highland. She has over 17 years financial services experience in both consulting and industry leadership positions, with a particular emphasis on advisor/advisory growth. Jill consults on front-, middle- and back-office strategies, with an emphasis on client experience and advisor/employee adoption. She leads North Highland's Fiduciary SME team and is a thought leader in shaping the industry's response to the new fiduciary standard of care, through her contributions to publications such as Kennedy Consulting, Investment Advisor, and Employee Benefit Advisor. 4 Not

5 AGENDA What you ll learn today The Move to Fiduciary Standard Impact of DOL Fiduciary Rule on Customer Experience What You Should be Asking Now 5 Not

6 THE MOVE TO FIDUCIARY STANDARD 6 Not

7 THE MOVE TO FIDUCIARY STANDARD The Department of Labor s (DOL) new fiduciary rules require Financial Advisors and financial institutions to prioritize the best interest of the client ahead of their own. These new rules cause a fundamental shift to the current business model. Firms and Financial Advisors will become fiduciaries on April 10, If opting to use the Best Interest Contract Exemption, the mechanics of the rule will be in effect January 1, The Department of Labor s long-awaited final fiduciary rule ensures that putting clients first is no longer a marketing slogan, it s the law, Tom Perez Secretary of Labor 7 Not

8 THE MOVE TO A FIDUCIARY STANDARD There will be winners and losers in this intentional shift to a model of transparency and trust-building in what is considered to be one of the greatest changes in the Financial Services Industry. $10B TO $31B $66B TO $76B $17B The cost to comply with the final rule and exemptions over 10 years. Estimated gains to IRA investors over 20 years, based on implementation of the final rule and exemptions. Aggregate annual cost of conflicted advice, according to the White House. Source: Department of Labor 8 Not

9 WHAT IS THE NEW FIDUCIARY RULE Investment advice is recommending certain actions and receiving a fee or other compensation for the advice: o A buy, sell, exchange or hold of an asset, or how assets are to be invested after they are rolled over, transferred or distributed from a plan or IRA o Investment policies or strategies; portfolio composition; selection of other persons to provide investment advice or investment management services; selection of investment accounts; and rollovers, distributions or transfers from plans or IRA s. The DOL wants Financial Advisors to hold the Best Interest of the Client when providing investment advice or management and to charge reasonable fees Fiduciaries cannot receive Commissions or other 3rd party payments without using the Best Interest Contract Exemption (BICE) 9 Not

10 RULE EXEMPTIONS General Education and Investment Communications (by itself, as well as in a series) Platform Providers Transactions With Independent Plan Fiduciaries With Financial Expertise Swap and Security-Based Swap Transactions 10 Not

11 THE DOL S FOCUS IS ON TAX DEFERRED ACCOUNTS Retirement Accounts ERISA qualified 401(k) and 403(b) plans o Fiduciary manages less than $50mm in AUM Retirement Plan Participants Individual Retirement Accounts Section 408(a) o Rollovers Other Tax Deferred Plans Under the Internal Revenue Code Health Savings Accounts Section 223(d) Qualified Annuities Section 408(b) Archer Medical Accounts Section 220(d) Coverdell Education Accounts Section Not

12 BEST INTEREST CONTRACT EXEMPTION ( BICE ) The Best Interest Contract Exemption enables Financial Advisors and the Firms to collect commissions and other 3rd party payment. The Financial Advisor and Firm must follow the Impartial Code of Conduct The firm will warrant that an infrastructure is set up to mitigate Material Conflicts of Interest Must provide proper Disclosures to clients Permits the client to make an informed decision Allows for proprietary products and third-party payments 12 Not

13 FINAL TIMING When Does the Rule Go Into Effect? On April 10, 2017 requirements need to be in place to act as a Fiduciary o Best Interest of the Client o Material Conflicts of Interest o Variable and indexed annuities will no longer qualify for PTE o Level-fee advisors The final implementation date for Best Interest Contract Exemption (BICE) requirements will be Jan. 1, 2018 o Mechanics in place o Contracts o Disclosure requirements 13 Not

14 14 Not How prepared is your firm for these DOL changes on a scale of 1 to 5? (1 being completely unprepared, 5 being completely prepared)

15 RULING IMPACT The impact of the ruling is far reaching throughout your firm Experience Drivers Strong Culture of Compliance & Governance Engagement Preference & Relationship Enablement Engagement Preference & Trust Strategy Implications Operations Compliance Risk Management Product Management Marketing & Communications Training & Education Advice & Guidance Client Services & Reporting 15 Not

16 Your brand and reputation are directly tied to the experience you provide. Firms that focus on their most important assets (clients) will win in the marketplace. HOW TO WIN 16 Not

17 IMPACT ON CUSTOMER EXPERIENCE 17 Not

18 THE BENEFITS OF CUSTOMER EXPERIENCE (CX) ARE CLEAR 25% 20% 20% 15% Revenue Growth Improved Customer Satisfaction Improved Cost to Serve Improved Employee Engagement Harvard Business Review 18 Not

19 CX leads to strong financial performance From 2007 to 2014 CX leaders cumulative returns were 49% greater than the S&P 500 Index, while CX laggards underperformed the index by 162%. (FORRESTER) 19 Not

20 CRITICAL CX DIMENSIONS The following dimensions are required for CX success: EASE It is simple for customers to derive value from experiences. Experiences are apparent, accessible, effortless and uncomplicated. CUSTOMER EXPERIENCE RELEVANCE Solutions and Services add value through utility and by meeting basic customer needs all at the right time and the right place. ORCHESTRATION Specific interactions and touch points are designed and delivered as an end-to-end experience versus a discrete transaction. EMPATHY Experiences are based on an in-depth understanding of customer behaviors, feelings, and motivations. 20 Not

21 EXPECTATIONS ARE EVOLVING Three factors are creating the next battleground for differentiation: 1. Transparency is mandating authenticity 2. Experience is impacted by the larger community 3. Meaningful experiences are meeting higher-level needs and all at an unprecedented pace. 21 Not

22 THE NEW FRONTIER Great customer experience today requires four components that are the benchmark by which every experience should be evaluated. But the great customer experience of tomorrow moves your customer relationships from commercial to human. 22 Not

23 CLIENT EXPERIENCE DRIVERS 23 Not

24 LEGISLATION DRIVEN CX EXAMPLES How legislation driven mandates can negatively impact the customer experience Takata Airbag Recall EMV/Chip & Pin Implementation 24 Not

25 25 Not Are you prepared to handle the client experience as part of your DOL implementation plan?

26 EXPERIENTIAL CONSIDERATIONS BY AUDIENCE 26 Not

27 At stake: Ability to provide services for Retirement Accounts Liability: You don t comply with the DOL s changes and become subject to additional liability At stake: Advisor retention and recruiting Liability: The Advisor perceives that the firm is primarily focused on the regulator and not on Advisors to help them implement the changes At stake: Trusted and loyal client relationships Liability: Your high-value clients question your trusted relationship and fees they ve paid because the changes are poorly communicated Timing: April 2017 Timing: Today Timing: Tomorrow 27 Not

28 THE QUESTIONS YOUR FIRM SHOULD BE ASKING How should my firm s governance structure be modeled? When is each disclosure required and where do I need to update it? What risks will my firm assume? What policies and procedures need to be created or updated? 28 Not

29 THE QUESTIONS YOUR FIRM SHOULD BE ASKING Am I confident that my Advisors know how to have a comfortable and confident conversation with clients/ prospects about the new fiduciary standards? How will my Advisors be personally impacted in their practice management? How do I best equip my Advisors so that they have the resources they need to navigate difficult conversations? 29 Not What training considerations do I need to implement for new Advisors?

30 THE QUESTIONS YOUR FIRM SHOULD BE ASKING Where else are our clients hearing about the DOL Fiduciary standard ruling? How do I ensure they believe our firm is being transparent? How do I make sure that our clients understand we have always worked to achieve their life goals? How do I communicate the unique value that they receive from working with us so they remain loyal? What are all of the touch points in a typical client journey that will be affected? 30 Not

31 MOVING FORWARD Mitigating the reputational risk is an issue to address today. Ensure your firm s employees and Advisors understand the implications of the changes to them, the firm, and their clients. Consistently communicate the firm s strategy on how the firm will educate, train and implement on the changes. Ensure your firm is focusing beyond the risk and compliance changes of the DOL Fiduciary Rule the Client and Advisor Experience will determine the winners the marketplace. This is not simply adding new disclosures in the compliance process. Upholding a fiduciary standard is the new way of doing business. 31 Not

32 LEARN MORE 32 Not

33 THANK YOU Jill Jacques Global Financial Services Lead North Highland (404) Alex Bombeck President and Global Customer Experience Lead Sparks Grove

34 34 Not The information in this presentation was compiled from sources believed to be reliable for informational purposes only. Any and all information contained herein is not intended to constitute legal advice, and thus you should consult with your own attorney regarding the information contained herein and its applicability, if at all, to your situation.