DST kasina - Positioning Asset Managers to Capitalize on the Opportunities Created by the DOL Fiduciary Rule

1. PositioningAssetManagersto
CapitalizeontheOpportunities
CreatedbytheDOLFiduciaryRule
A DST kasina Whitepaper
February 2016

2. 2
In February 2015, President Obama
directed the U.S. Department of Labor
(DOL) to update the requirements for
advisors of retirement plans to abide by
a fiduciary standard and put their clients'
best interests before their own profits. The
DOL delivered the final Rule to the Office
of Management and Budget for review
at the end of January and is anticipated
to release it publicly as early as March.
If the DOL Rule moves forward, it will
likely be effective before the end of 2016,
assuming that any challenges expected to
be mounted by Congress are rebuffed.
If implemented, the DOL Fiduciary Rule will likely also
fast-track trends that are already afoot in financial
services, including the use of automated digital
advice, the move from higher-cost actively managed
products to lower-cost passive investment products
and the shift from commission-based to fee-based
accounts. Leading asset managers have already been
working on initiatives to address these changes by
treating them as opportunities.
This whitepaper is DST kasina’s initial take on select
aspects of the proposed DOL Fiduciary Rule and its
impact on asset management firms. We highlight the
implications of selected aspects of the rule to help
business executives think about, and plan for, any
changes to their distribution and marketing strategies
that may be required. To that end, we have included
a list of questions at the end of this report that asset
managers can ask themselves to prepare for the new
regulatory environment. The paper is not intended to
provide legal advice or a comprehensive review of the
proposed Rule.
Key DOL Rule Changes That
Affect Asset Managers
Two key Rule changes will affect how asset managers
do business:
1. Regulatory authority over financial advice to
retirement account holders is expanded
2. Compensation models that conflict with the
client’s best interest are prohibited
EXECUTIVE SUMMARY
CONTENTS
Key DOL Rule Changes that Affect Asset
Managers...............................................................4
Opportunities for Asset Managers....................6
What Leading Firms are Doing.........................12
Key Questions Asset Managers Should
Address................................................................12

3. 3
Opportunities for Asset
Managers
Most asset managers will likely have to make
adjustments to their current business strategies to
comply with the new Rule. But beyond preparing
themselves for the new requirements, leading firms
already have been adapting or developing new
business models, collaborating with technology
vendors and making strategic acquisitions in
response to the broader trends in financial services
outlined above. They are aggressively positioning
themselves to capture market share by:
ƒ ƒ Adapting to new disclosure requirements
ƒ ƒ Preparing to maintain and report additional data
to DOL
ƒ ƒ Helping Individual Retirement Account holders
receive needed advice
ƒ ƒ Rethinking call center support
ƒ ƒ Providing retirement education content
ƒ ƒ Anticipating demand for lower-cost product
options
ƒ ƒ Ensuring continued servicing of small business
plans
ƒ ƒ Identifying options for small, potentially
orphaned, retirement accounts
What Leading Firms Are Doing
Regardless of what the final DOL Rule looks like, the
asset managers actively addressing the opportunities
presented by the shifts in financial services are
clearly best positioned to succeed. The firms that are
preparing themselves to thrive are:
ƒ ƒ Working closely with key distribution partners to
deliver competitive products and services
ƒ ƒ Integrating digital portfolio-building and advice
options
ƒ ƒ Obtaining deeper insight into advisors and
investors
ƒ ƒ Overhauling and extending product offerings that
anticipate demand for efficient management
ƒ ƒ Developing communications initiatives to build
interest and trust with investors in addition to
advisors

4. 4
In February 2015, President Obama directed the U.S.
Department of Labor (DOL) to update requirements
for advisors of retirement plans to abide by a fiduciary
standard and put their clients' best interests before
their own profits. In response, the DOL proposed the
“Fiduciary” or “Conflict of Interest” Rule in April,
setting off a fierce lobbying battle.
Proponents argue that the measure, which would
require brokers to put their clients' interests ahead of
their own in 401(k) and individual retirement accounts,
is needed to protect workers and retirees from high-
fee products that erode their savings.
Opponents maintain that the Rule would increase
liability risk and regulatory costs for brokers, forcing
retirement savers with modest accounts out of
the market because of the increased expense of
obtaining financial advice.
Despite public hearings, thousands of comments
and a threatened rider to an omnibus appropriations
bill that could have delayed or even prevented
promulgation of the regulation, it seems that if the
final Rule is published by April 2016, it could go into
effect by year end. Despite the short-term disruption,
the reforms should be positive for the standards and
professionalism of the advisory business in the long
haul.
If implemented substantially as proposed, the DOL
Rule will also accelerate existing trends in financial
services, including the use of robo-advisors, the move
from higher-cost actively managed products to lower-
cost passive investment products, and the shift from
commission-based to fee-based accounts. Leading
asset managers have been working on initiatives to
address these opportunities.
BACKGROUND KEY DOL RULE CHANGES
THAT AFFECT ASSET
MANAGERS
Research conducted by DST with third-party
administrators (TPAs), record-keepers, asset managers
and registered investment advisors finds that leading
firms are already shaping their strategies for product
management, distribution and marketing to address the
needs of fiduciaries providing fee-based advice.
Regulatory Authority over
Financial Advice to Retirement
Account Holders is Expanded
Under the DOL's proposed definition, any individual
who receives compensation for providing advice that
is tailored or specifically directed to a particular plan
sponsor, plan participant, beneficiary or IRA owner in
making a retirement investment decision will likely be
a fiduciary. The fiduciary can be a broker, registered
investment advisor, insurance agent or other client-
facing professional. The suitability standard under
which brokers currently operate would be superseded
by the fiduciary standard.
Retirement investment decisions can include, but are
not limited to, which assets to purchase or sell, and
whether to rollover from an employer-based plan to an
IRA.
Under the proposed Rule, the advisor, as a fiduciary,
would be required to provide impartial advice in the
client's best interest and to not accept any payments
creating conflicts of interest unless they qualify for
a new, principles-based exemption called the Best
Interest Contract Exemption (BICE), discussed below,
which is intended to ensure that the investor is
adequately protected.
Rollovers are included. Rollovers from employer-
sponsored retirement plans have fueled the growth of
IRAs. According to the Investment Company Institute
(ICI), 87% of new traditional IRAs in 2012 were opened
only with rollovers.

5. 5
Professional financial advisors were the most
common source of information for investors
researching the decision to roll over money from
their former employer’s retirement plan into a
traditional IRA. 61% of traditional IRA-owning
households consulted a financial professional for
advice. The proposed regulations will likely govern
any recommendation to roll money out of a qualified
plan, and the investment advice provided once a
rollover is completed. The rules should apply to plan
advisors who work with individual participants, and
to independent advisors — unaffiliated with the
plan or sponsor — who are advising clients on their
retirement rollovers.
Many large 401(k) plans have improved dramatically
in product options and costs in recent years. It may
behoove certain account holders to remain in large
401(k) plans if costs are a factor, as IRA expenses
can run 25 to 30 basis points higher than 401(k)s,
according to the U.S. Government Accountability
Office, at least for large plans.
Compensation Models That
Conflict with the Client’s Best
Interest Are Prohibited
Under ERISA and the Internal Revenue Code,
individuals providing fiduciary investment advice
to plan sponsors, plan participants and IRA owners
generally cannot receive payments that create
conflicts of interest without a prohibited transaction
exemption (PTE). The proposed Rule creates a
new principles-based PTE called the Best Interest
Contract Exemption (BICE). Unlike existing PTEs,
which cover narrower categories of specific
transactions under more prescriptive and less flexible
conditions, the BICE appears to allow firms to set their
own compensation practices, as long as they commit
to putting their client's best interest first and disclose
any conflicts that may prevent them from doing so.
Common forms of compensation in use today, such as
commissions and revenue sharing, will be permitted
under this exemption, whether paid by the client or
a third party such as a mutual fund. To qualify for
the BICE, the advisor may be required to enter into a
legally enforceable contract with the plan sponsor or
retirement account holder that:
ƒ ƒ Commits the firm and advisor to providing
prudent advice that is solely in the client's best
interest
ƒ ƒ Warrants that the firm has adopted policies
and procedures designed to mitigate conflicts
of interest and compensation structures that
would encourage individual advisors to make
recommendations that are not in clients' best
interests
ƒ ƒ Clearly and prominently discloses any conflicts
of interest, like hidden fees or backdoor
payments, which might prevent the advisor from
providing advice in the client's best interest.
In addition to the new BICE, the DOL proposes several
other exemptions, including:
ƒ ƒ A PTE for principal transactions that would allow
advisors to recommend certain fixed-income
securities and sell them to the investor directly
from the advisor's own inventory, as long as the
advisor adheres to the exemption's consumer-
protective conditions
ƒ ƒ A new low-fee exemption allowing firms to
accept payments that would otherwise be
deemed conflicted when recommending the
lowest-fee products in a given product class,
with even fewer requirements than the best-
interest contract exemption.
The proposed Rule also references the statutory
exemption created as part of the Pension
Protection Act of 2006, which generally allows
fiduciaries giving investment advice to pension plan
participants, beneficiaries and IRA owners to receive
compensation from investment vehicles that they
recommend in some circumstances: for example,
the recommended investment vehicles result from
the application of an unbiased and independently
certified computer program, or the fiduciary's fees
are level (i.e., compensation cannot vary based
on particular investment recommendations). This
specific exemption is currently not widely relied on
because it is viewed as cumbersome and expensive.
But it may have implications for the future of small,
balanced accounts that broker-dealers could migrate
to automated advice providers.

6. 6
Most asset managers will have to make adjustments
to their current business strategies to comply with
requirements of the new Rule. In interviews, many
executives appear to be taking a wait-and-see
approach to addressing any challenges and managing
associated costs. But leading firms already have
been adapting or developing new business models,
collaborating with technology vendors and making
strategic acquisitions in response to the broader
trends in financial services outlined above. They
are aggressively positioning themselves to capture
market share.
Adapting to New Disclosure
Requirements
Among the requirements of the BIC Exemption,
certain compensation disclosures must be made to
the public via websites and to retirement account
holders at the point of sale.
A public website must provide information about,
among other things:
ƒ ƒ Direct and indirect material compensation
provided in connection with each asset that is
available and has been purchased, held or sold
within the last 365 days. This includes trailing
and 12b-1 fees
ƒ ƒ The source of the compensation
ƒ ƒ How the compensation varies within and among
assets
The DOL provided model disclosure charts for online
and point-of-sale use that detail transactional and
ongoing charges to investors, fees paid to advisors
and their firms, and the cost of investing over periods
of time.
The proposed Rule appears to require that annual
disclosure be provided to clients within 45 days after
the end of the applicable year and include three items
for the applicable period, for each asset purchased,
held or sold:
ƒ ƒ The price at which it was purchased or sold
History shows that regulators and technology vendors
have specialized in solutions for specific rules. FINRA,
for instance, has a modernized big data platform that
examines and monitors over 4,000 securities firms
and 600,000 brokers. Existing technology suppliers
like Pinpoint Global provide SEC17a-4 compliance
solutions focusing on activities such as Sales Material
Submission & Review, Advisor Account Review, Gifts
& Entertainment, Branch Office Exams, etc. Once the
new Rule is finalized and fully understood, we expect
FINRA as well as technology firms like Broadridge
and DST Systems to develop and refine industry
solutions.
The requirement for additional disclosure also
provides an opportunity for asset managers to offer
education on what fees and compensation pay for.
We have seen thoughtful and creative approaches,
including interactive tools, video tutorials and client-
ready materials from Canadian asset managers in
anticipation of CRM2. They provide good models for
U.S. asset managers.
ƒ ƒ Fees and expenses paid by investor, directly or
indirectly
ƒ ƒ The amount of compensation received by the
advisor and financial institution, directly or
indirectly
Technology solutions will make additional disclosure
requirements less challenging to implement by
calculating the costs and fees and automating
the disclosure process. 62.3% of DST survey
respondents already plan to provide tools to advisors
for investment policy statement development, fund
monitoring, plan benchmarking and fee comparison.
OPPORTUNITIES FOR ASSET MANAGERS
62.3% of respondents already
plan to provide tools to advisors
for fund monitoring, plan
benchmarking and fee comparison

7. 7
Preparing to Maintain and
Report Additional Data To DOL
In addition to the public and client disclosures,
another condition of the proposed BIC Exemption
would apparently require financial institutions to
maintain certain transaction and investment return
data for six years and make the data available to the
DOL upon request.
For each transaction (purchase, holding and sale), the
following information must be maintained by financial
institutions:
ƒ ƒ Aggregate number and identity of shares/units
involved
ƒ ƒ Aggregate dollar amount involved and cost to
the Retirement Investors
ƒ ƒ Revenue received by the financial institution and
any affiliate
ƒ ƒ Identity of each revenue source and the reason
the compensation was paid
For each retirement account holder, the following
information must be maintained at the investor level:
ƒ ƒ The identity of the Advisor
ƒ ƒ The beginning-of-the-quarter value of the
portfolio (including plan and IRA assets)
ƒ ƒ The end-of-the-quarter value of the portfolio
(including plan and IRA assets)
ƒ ƒ Each external cash flow to or from the portfolio
during the quarter, and the date on which it
occurred
Technology solutions already help asset managers
to meet data retention requirements from the SEC
and FINRA. In the case of mutual fund transaction
data points, such as number and dollar amount of
shares, compensation to intermediaries and financial
institutions are retained by transfer agents. But firms
should ensure that the available data fulfills the Rule’s
requirements. Examples abound where assumptions
have turned out to be incorrect. For example, with
Rule changes related to Cost Basis Reporting, the
existing data was assumed to be correct, but turned
out to be insufficient and required many months of
additional analysis and modifications to databases
and computer programs. So, prudent asset managers
will collaborate with their transfer agents to ensure
that the right level of data is available for reporting.
Participant-level data is stored in plan administration
systems (for example, ADP, Fidelity, Empower and
Principal Financial). At first glance, the data required
by the DOL is available in all platforms and already
included in existing reports. But prudence dictates
ensuring that existing data matches the DOL’s
reporting requirements.
Helping Individual Retirement
Account Holders Receive
Needed Advice
According to the 2015 Investment Company Fact Book,
1 in 3 U.S. households invest in at least one IRA. Total
IRA assets topped $7.4 trillion in the fourth quarter
of 2014. That represents more than one-quarter of
the total $24.7 trillion retirement market in the United
States. The largest component of IRA assets is
invested in mutual funds, followed by other assets,
including ETFs, individual stocks and bonds, and other
securities held through brokerage accounts ($3.0
trillion at year-end 2014). The mutual fund industry’s
share of the IRA market was 48% at year-end 2014,
the same as at year-end 2013.
The ICI reports that, although most U.S. households
are eligible to make contributions to IRAs, few do.
Indeed, only 12% of U.S. households contributed to
any type of IRA in tax year 2013. In addition, very few
eligible households made “catch-up” contributions to
traditional or Roth IRAs.
Rollovers have fueled the growth of IRAs. Traditional
IRA-owning households generally researched
the decision to roll over money from their former
employer’s retirement plan into a traditional IRA. The
most common source of information was professional
financial advisors. Advisors were consulted by 61%
of traditional IRA-owning households with rollovers,
with half indicating they primarily relied on financial
professionals.

8. 8
Asset managers need to adopt a more comprehensive
advising role and provide financial advisors with
educational resources to help them identify the best
options and justify any choices that may be more
costly but provide a better outcome. ICI survey data
shows that the top reasons investors want to roll over
include preservation of tax deferral, seeking more
investment options and a desire not to leave assets
with a former employer. Consolidation of assets and
a desire to use a different financial services provider
are also frequently cited reasons. Asset managers
can provide collateral and tools to help advisors
justify fees for a service that goes beyond advising
on investments and portfolio allocation to address
broader retirement planning concerns, like retirement
income and draw-down projections, informed
recommendations about claiming Social Security,
Medicare enrollment and assessment of long-term
care needs.
Rethinking Call Center Support
The impact on call centers is dependent upon how an
asset manager uses the call center staff today. For
example, if a retirement account holder contacts a
call center with questions about specific fund options
while exploring whether to exchange, roll over, open
or contribute to an IRA, the proposed Rule could
potentially vault him into a contract under BICE, if he
is sitting in load funds. The same could be true for an
existing IRA account holder who is performing one of
these actions with his fund company or intermediary
providers for the first time after the Rule goes into
effect.
However, the impact is clear for call centers using
personnel as commissioned IRA sales people: they
will likely need to be retrained to provide general
advice and to steer calls regarding particular
investment options to fiduciaries. Training programs
and intelligent scripting technology could aid IRA help
desk representatives to conform to firm compliance
standards. Firms will need to work with their
compliance departments to determine the appropriate
approach.
It gets more complicated when call center personnel
receive additional compensation for referrals of
participants to providers or specific investment
products. As it stands, any referral fee would almost
certainly be considered compensation and create
a fiduciary relationship for non-commissioned
salespeople. The DOL may exempt referral fees to
those providing purely educational services in the
final Rule, but, to avoid fiduciary status, firms will
likely need to eliminate compensation for referrals to
providers.
However, DOL Advisory Opinion 2005-23A warns
that fiduciary advisors who provide advice about
rollover assets to a plan may be subject to ERISA’s
prohibited transaction rules. By exercising de facto
discretion over plan assets, the DOL reasons that the
fiduciary may be using plan assets in its own interest
by collecting an advisory fee. In addition, a 2013
U.S. GAO report found call center representatives
encouraged IRA rollovers without making a
reasonable due diligence inquiry as to whether
participants would benefit more by staying in the plan.
Given the heightened interest of the SEC and FINRA
in marketplace abuses surrounding rollovers, asset
managers that want to continue providing rollover
assistance must prepare to meet the requirements of
fiduciary status.
Providing Retirement Education
Content
Advisors and plan sponsors need to be able to provide
general education on retirement saving across
employment-based plans and IRAs without triggering
fiduciary duties. For nearly 20 years, the “education
carve out” (as reflected in Interpretive Bulletin 96-1)
and the 2010 DOL proposal allowed firms to provide
“information and materials that constitute ‘investment
education’ or ‘retirement education’” without being
considered a fiduciary, regardless of who provides
the educational information and materials or the form
in which the information and materials are provided.
However, the proposed Rule appears to narrow the
definition of ‘education’ to prohibit materials that
include “any specific investment recommendations
that the retirement saver can reasonably be
expected to act upon.” In a similar vein, the proposed
Rule likely limits the seller's carve-out to sales
presentations to large plan fiduciaries (plans with
at least 100 participants and $100 million in AUM),
who purportedly have the financial expertise to
differentiate investment education and advice from
sales pitches in the context of investment products.

9. 9
As a result, educational guidance on the extent to
which an individual should invest in different asset
classes based on basic factors — for example, age or
current retirement savings — could trigger fiduciary
status if it attempts to help investors by connecting
the dots between asset categories (e.g., large-cap
equity, corporate bond) and specific examples of
investments that fit within those categories. In other
words, firms will likely need to revise any content
that connects the dots between abstract categories
and actual investments in their educational materials.
Website tools that prompt investors to enter
information about themselves and their investment
goals and provide hypothetical illustrations that are
specific and tailored to those goals could trigger
fiduciary status, too — especially if the results are
accompanied by an “Act Now” button to implement
the recommendation.
Driven by plan sponsors, the demand for retirement
and financial education services that can be passed
on to employees has never been higher. Leading
firms are developing or enhancing digital tools to
help wholesalers provide guidance with portfolio
modeling and allow users to compare and contrast
portfolios and prices. They will initiate training
programs with their sales teams to clarify any
necessary changes to advisor education. Some asset
managers also indicate that their reliance on advisors
to communicate about their products needs to be
augmented with direct communication to investors
in the form of digital marketing and advertising.
Independent education providers like Wealth
Management Systems Inc., which are unaffiliated
with asset managers, may also be used to deliver
content and tools.
Anticipating Demand for
Lower-Cost Product Options
Many asset managers already have expanded share
class offerings of mutual funds that comply with
proposed DOL regulations to meet the demands of
plan sponsors for lower-cost options. They have also
added low-cost, passively-managed options, including
ETFs, to their product lineups. Plan sponsors and their
recordkeeping partners (as well as payroll providers
like ADP) will likely need to demonstrate to their plan
participants that they negotiated with asset managers
to include cheaper share classes optimized for
retirement plans, including “I” or “R” share classes.
They will be pushing harder for R5 (no 12b-1 fees) and
R6 share classes (no 12b-1 fees and sub T/A fees).
And they will turn to asset managers that can provide
them with products meeting their requirements for
performance at lower cost.
Ensuring Continued Servicing of
Small Business Plans
Of the $15 trillion invested in retirement savings,
$472 billion is invested in plans provided by small
business owners for more than nine million U.S.
households. Many small businesses may not be able
to offer a 401(k) plan because of cost, administrative
complexity or eligibility rules. So, they rely on
simplified retirement plans to cover their owners and
employees, including SEP and SIMPLE IRA plans.
It is argued that it will become cost-prohibitive to
service smaller accounts that historically have
compensated advisors with commissions. Any new
compliance costs and legal liabilities on advisors
to SEP and SIMPLE IRAs would be passed on to
business owners and their employees. However, 57%
of client assets are managed in fee-based accounts
today, and a number of advisors to IRAs and small
401(k) plans are already compensated on a flat-fee
basis in a manner consistent with the proposed DOL
requirements. 62.9% of respondents to a DST survey
believe that small plans and accounts will largely be
served by fiduciaries.
62.9% of respondents
believe that small plans and
accounts largely will be
served by fiduciaries

10. 10
To comply with the proposed new Rule, commission-
based advisors and their financial institutions will
likely have to adjust how their products and services
are structured, and how the retirement plans and IRA
accounts are charged fees. For financial advisors
working for asset managers or insurers offering
investment products, steps will likely need to be taken
to eliminate conflict of interest in recommending their
own products.
1. Asset managers should provide customers with
fully transparent and detailed information on
products in which commissions are paid (e.g.
annuities).
2. Firms should be able to demonstrate that
their products are optimally priced within the
competitive market and that clients are not
driven to more expensive funds.
3. Multi-asset portfolios will be scrutinized for the
typically high fees incurred by the inclusion of
proprietary, actively-managed funds, especially
when they are the QDIA. They will come under
pressure to include passive investment options
when there is no justification for higher-priced
actively-managed asset categories.
The funds included in SEP and SIMPLE IRA plans
are generally determined by plan design vendors
and typically include a range of investment options.
The responsibility of the employer and its advisor is
to ensure that the selected vendor offers a suitable
product at a commercially reasonable price.
Identifying Options For Small,
Potentially Orphaned,
Retirement Accounts
Evidence from outside the U.S. — specifically from
the United Kingdom, Australia and Canada, which
have implemented Rules discouraging or prohibiting
sales commissions — suggests that U.S. investors
with modest retirement accounts (less than $25,000)
face the very real potential for a growing advice
gap. Advisors may determine that servicing smaller
accounts poses too much risk for litigation and too
little profitability under the new Rule.
There has been no shortage of estimates on the
number of accounts and assets that fall into this
category. DST data shows approximately 35 million
IRA accounts on its systems with less than $25,000 in
assets potentially at risk. DST survey research finds
that 25.4% of participants respond that, to receive
personal advice, advisors will require a minimum
balance of $50,000. 34.3% say a $100,000 minimum
balance will be required.
Morningstar estimates between $250 billion and
$600 million will be shifted from personal service
to automated advice platforms. In news reports,
LPL warns it may have to “orphan” retirement
accounts with less than $15,000, which accounts
for approximately 3% of retirement assets on LPL’s
brokerage platforms. Of course, a portion of these
IRAs are held by high-income households that also
invest in 401k plans. They likely already benefit
from professional financial advice. Low-income
households that receive advice reportedly use banks
and brokerages in equal number.
The trend to use wrap- and fee-based accounts is
likely to accelerate, as is the use of low-cost, passive
investment products. Strategic Insights reported
that 70% of all mutual fund shares sold in 2014 were
in wrap/fee based products, up from 34% in 2007.
Reuters reports that up to $1 trillion in assets will
move from active to low-cost passive investment
products once the Rule is implemented — mainly
because the regulators seem to view low-cost
passive investing as more consumer friendly than
active approaches.
of respondents
believe advisors
will require a
$100,000 minimum
balance
of respondents
believe advisors
will require a
minimum balance
of at least $50,000

11. 11
The new Rule may contribute to increasing popularity
of several new business models.
ƒ ƒ Automated Investment Platforms: Also referred
to as “robo-advisors,” they provide low-cost
automated investment management services
to investors. The ability to achieve scale
and profitability will determine the future of
automated advice providers, which haven’t
been around long enough to be tested in down
markets or among a broad variety of investors.
Asset managers will either adopt or acquire
these platforms, taking the lion’s share of
automated advice assets. An obvious target for
robo-advisors is accounts with balances below
$25,000 projected to be orphaned because
they are not big enough to meet the minimum
balances of fee-only advisory firms.
ƒ ƒ Portfolio Outsourcing: Focus on holistic financial
planning while outsourcing the investment
management function to managed accounts or
solutions-based multi-asset products provided
by the home office or third-party asset and
wealth managers. Scale and asset accumulation
are critical to the health of this business model.
ƒ ƒ Proprietary Investment Management: Manage
client assets in house utilizing proprietary
optimized portfolio models. The models use
both active and passive strategies. However,
there will be a concentrated use of active
strategies as passive products and ETFs making
up a greater portion of the portfolio. Scale and
asset accumulation are still important, but the
continuous attraction of new clients is less
critical, as these firms and advisors attract a
high net worth clientele.
ƒ ƒ Total Scaled Advice Platform: Provide a range of
automated to full-service financial planning and
investment management, utilizing a combination
of human and digital advice to provide services
based on assets under management. Leading
firms using this business model will be the
incumbent broker-dealers who are most adept
at integrating digital services into their existing
wealth management practice and scale their
services for various levels of investor assets.
Digital platforms are in a strong position to fill the
advice gap and will likely be one of the primary
beneficiaries in the wake of more stringent fiduciary
rules. The technological advances in the advice space
are increasingly sophisticated, efficient, customizable
and popular. They broaden access to quality, tailored
investment advice and investment choices at an
affordable price, thereby directly addressing the
primary opposition to the proposed ERISA rule.
They also provide asset managers integrating these
services with a new opportunity to reacquaint
themselves with shareholders and their needs.
Large asset managers with significant footprints
across the wealth management industry like
Vanguard, Fidelity, BlackRock and Invesco already
have built, acquired or partnered with automated
advice providers. Digital advisors like Betterment and
Financial Engines are actively pursuing the retirement
401(k) plan market. Digital advice will likely become
an inevitable outcome for small retirement investors.
That has implications for the types of investments that
will be included.
Asset managers whose businesses aren’t suited to
servicing digital advice platforms need to find ways
to adapt their products to be candidates for inclusion
on these platforms. While most of these platforms
are currently ETF-centric, as digital platforms grow
they are likely to support multiple types of vehicles. A
consistent element for digital platforms and the other
business models discussed above will be an emphasis
on fees. Thus, low-cost no-load mutual fund share
class options and ETFs will be critical to the retention
and growth of product assets for the aspiring and
leading asset managers. Asset managers that adapt
and manage their product lines to most effectively
address the product demands of the various business
models will emerge as leaders under the new Rule.

12. 12
WHAT LEADING FIRMS
ARE DOING
Asset managers that are actively addressing
opportunities created by the growing trends in
financial services are best positioned to succeed,
regardless of what the final DOL Rule looks like. The
demand among investors for transparency, lower fees
for advice and lower-cost products is undeniable and
undiminished. Firms positioning themselves to thrive
in the future are:
ƒ ƒ Working closely with key distribution partners to
deliver competitive products and services
ƒ ƒ Integrating digital portfolio-building and advice
options to deepen connections with distribution
partners
ƒ ƒ Obtaining deeper insight into advisors and
investors to build stronger, long-lasting
relationships
ƒ ƒ Overhauling and extending product offerings to
meet new market demands
ƒ ƒ Developing communications initiatives to build
interest and trust with investors, in addition to
advisors
KEY QUESTIONS ASSET
MANAGERS SHOULD
ADDRESS
The proposed DOL Rule provides progressive
asset management firms greater impetus to find
opportunities for differentiation and growth by
addressing increased demand for passive investment
products, fee-based guidance and automated advice.
Key questions should help business leaders think
about the best options for their firms.
Organizational
ƒ ƒ Do you have a team in place to manage new DOL
requirements in business planning for 2016 and
beyond?
ƒ ƒ Are you organizing and mobilizing your teams
to monitor and respond to the proposed DOL
Rule and its implications (e.g. Home Office
support, work management/forecasting, digital/
technology, business intelligence and reporting)?
ƒ ƒ Are your technology and communication
systems prepared to implement requirements of
the proposed Rule?
Sales
ƒ ƒ Have you met with key distribution partners to
learn about possible changes to relationship
requirements?
ƒ ƒ Are you reviewing current compensation
policies, agreements and practices with
distributors and advisors for changes that may
need to be made?
ƒ ƒ Are you developing and implementing training
for your sales teams to understand requirements
of the proposed Rule?
ƒ ƒ Are your broker-dealers and financial
intermediaries asking for support in serving
small accounts?
ƒ ƒ Are your broker-dealers and intermediaries
changing their policies on what funds of yours
they are selling?
Marketing
ƒ ƒ Are you reviewing traditional and digital
communications and collateral for any
adjustments needed to comply with the proposed
Rule?
ƒ ƒ Are you examining what changes need to be
made to retirement education content and tools?
ƒ ƒ Are you analyzing interactive tools that
recommend asset allocations and products to
review what changes may need to be made to be
in compliance?
ƒ ƒ Have you identified technology vendors
that can help with retirement education and
communications solutions?

13. 13
Operations
ƒ ƒ Do you anticipate broker-dealers and
intermediaries to move between share classes
and/or significant conversions between share
classes? If so, how are you preparing for it?
ƒ ƒ Do you expect an increase in the non-advised
(orphan) accounts found on your system?
ƒ ƒ Are your partners (e.g., retirement platforms,
transfer agents) able to provide the DOL with
required reports?
ƒ ƒ Are you reviewing potential impacts on scripting
and training for call center personnel?
ƒ ƒ Have you identified technology options for
automated rollover solutions?
ƒ ƒ Have you considered technology solutions that
can assist with data retention and reporting
requirements?
Product Strategy
ƒ ƒ Are your product capabilities aligned with
intermediary business models once the new Rule
is implemented?
ƒ ƒ What share classes are your broker-dealers and
intermediaries considering in order to help retain
and grow their business?
ƒ ƒ How can your product and investment
management expertise assist in the participation
and growth of digital advisor platforms?
ƒ ƒ Do you periodically evaluate the cost of your
products on DCIO platforms, and can you
demonstrate that you’ve acted in good faith
in pricing your funds for IRA and DC retail
customers?
ƒ ƒ Are you regularly evaluating the risk-return
benefits of actively-managed strategies in your
multi-asset class (MAC) funds?
ƒ ƒ Are you reviewing disclosure implications for
target-date funds?
ƒ ƒ If you are a variable annuity provider, what
changes are you anticipating to simplify products
like investment-only annuities?

14. NOTHING CONTAINED HEREIN IS LEGAL, TAX, ACCOUNTING, INVESTMENT, FINANCIAL OR OTHER PROFESSIONAL ADVICE AND SHOULD
NOT BE USED AS SUCH, EVEN IF ANY INFORMATION HEREIN APPEARS TO PROVIDE SUCH ADVICE OR TO INTERPRET LAW.
This information is intended to provide a general overview of certain market developments and is not an offering or commitment to provide
any services. kasina, LLC, is a wholly-owned subsidiary of DST Systems, Inc. This information is for use by institutional clients only is not
intended to be relied upon by retail clients. This information, which may be considered advertising, is for general information and reference
purposes only and is not intended to provide legal, tax, accounting, investment, financial or other professional advice on any matter, and is
not to be used as such. Neither kasina, LLC nor DST Systems, Inc. warrants or guarantees the accuracy or completeness of, nor undertake
to update or amend the information or data contained herein. We expressly disclaim any liability whatsoever for any loss howsoever arising
from or in reliance upon any of this information or data. Trademarks and logos belong to their respective owners.
© kasina, LLC 2016
For more information about DST kasina’s research or any of our other services, please contact us.
DST kasina, 24 West 25th Street, 11th Floor, New York, NY 10010 | info@kasina.com|www.kasina.com|
212.349.7412
14
Principal Author:
Contributors:
Julia Binder
Head of Strategic Marketing Research and Managing Editor of e-Business Compass
Matthew Fronczke
Engagement Manager
Rubesh Jacobs
Director
Tracy Needham
Senior Research Analyst
Lawrence Petrone
Head of Product Research & Consulting