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Morningstar: Harness Big Data to Fix DOL Rule

August 21, 2017

Morningstar says a big-data system verifying fiduciary compliance can appease supporters as well as opponents of the Department of Labor’s fiduciary rule, according to BenefitsPro.

Opponents of the rule, which requires retirement advisors to put clients’ interests first and which went into partial effect in June, have taken issue with the rule’s “private right of action” clause.

They say allowing lawsuits would leave advice firms at the whim of trial lawyers, BenefitsPro writes.

But consumer advocates say taking the threat of lawsuits out of the rule will make it easier for companies to evade their fiduciary responsibility, according to the web publication. The DOL, meanwhile, has recently extended the final compliance deadline for the rule by 18 months, which experts say will likely lead to a major overhaul.

Providing exemptions for the private right of action would leave it without an adequate enforcement mechanism, BenefitsPro says of Morningstar’s stance on the issue. But this can be addressed by creating what Morningstar calls an “auditable big-data system” that would access all of a client’s portfolios and evaluate the cost and quality of investments, the level of personalized advice, and how appropriate the allocations are to the client’s goals, according to BenefitsPro.

Such a system, which Morningstar says should be managed by a neutral outside party, could automatically approve a portfolio when it judges it in the best interest of a client, the web publication writes. And it would allow firms to “pre-emptively prove” compliance, Morningstar researcher Aron Szapiro tells BenefitsPro.

The technology to pull this off is already in place, Szapiro adds. The only real obstacle to implementing such a system is getting the DOL to find a way to work the system into the rule, he tells BenefitsPro.

“Labor would have to come up with a workable way to incorporate this into an exemption that satisfies the major parties,” Szapiro says. By “Labor” he means the DOL. “But once you have the regulation, it would only be a matter of months to stand this up.”

By Alex Padalka
  • To read the BenefitsPro article cited in this story, click here.