New Report: Changing the Landscape of Customer Experience with Advanced Analytics

Today’s financial consumer enjoys unprecedented information and choice, both in terms of channels and access to third party or crowdsourced opinion. Higher expectations support (and in part reflect) the skepticism that to a large degree defines the Millennial generation. These expectations underscore a fundamental shift in the power balance between the client and wealth manager, one reinforced by regulation such as the US Department of Labor conflict of interest rule

The ascendance of the client should be a call to action for wealth managers. As I discuss in a new report authored with my Celent colleagues Dan Latimore and Karlyn Carnahan, wealth management firms need to operationalize insights from new data sources, and bring servicing models up to date with their more sophisticated understanding of the client.

Campaigns and next best sales approaches that have worked in the past (or at least well enough to encourage firms to invest man hours in their design and execution) must be brought into the digital age. Too often these campaigns are a blunt hammer: they are built to sell product and ignore the evolving needs of the individual client, as well as the multiplicity of digital touch points useful to reach him or her. It is hardly surprising that the client reacts negatively to the presumption inherent in these offers.

At the height of summer, the defined contributions wars heat up

Amidst the summer lull, the Department of Labor (DoL) has issued Field Assistance Bulletin 2015-02, a clarifying document that aims to open the door to the broader use of annuities within defined contribution (DC) plans.   While annuities have been allowed within DC plans for some years, a lack of guidance as to fiduciary obligations post sale has tempered sponsor enthusiasm. The bulletin explains that while sponsors are considered under fiduciary obligation at the time of annuity selection and at each periodic review, they will not be held to this standard in the case of specific purchases by a participant or beneficiary.   This distinction is important in that it grants significant protection to sponsors, but the DoL leaves significant wiggle room as to the frequency of required reviews. Clearly, published reports of the pending insolvency on an issuing insurer would trigger the need for a review. Otherwise, the degree of diligence that must be exercised by the sponsor post-selection will need to be evaluated on a case by case basis:  first by the plan sponsor, presumably, and then by the DoL.   This may be a best effort solution to an irreconcilable problem, but such a measured response by the DoL is unlikely to eliminate what it describes as “disincentives for plan sponsors to offer their employees an annuity as a lifetime income distribution.” Plan sponsors have little incentive, in any case, to assume the risks of offering annuities when these are readily available for purchase outside the pre-tax space, and so the DoL will need to aim higher.   What is noteworthy here is not so much the narrow scope of the little noticed bulletin, or its limited reach, but the degree to which it signals an acceleration of DoL efforts to clean up the DC business.  To a large degree, this acceleration reflects a heightened jockeying for position among regulators and other industry actors with an interest in guiding reform. The recent Supreme Court case of Tibble vs. Edison International, which affirmed the nature of the fiduciary responsibility of plan sponsors to participants on an ongoing basis, appears to have brought issues of power and control to a head.   I’ll talk about this in my next post.