REGULATION CREATES A NEED
Regulation Best Interest “Reg BI” is a 2019 Securities and Exchange Commission (SEC) rule that requires broker-dealers to only recommend financial products to their customers that are in their customers’ best interests. Not only that, but the rule as states that brokers are required to clearly identify any potential conflicts of interest and financial incentives the broker-dealer may have for the sale of those products.
At the heart of this issue is “Advice,” and making sure that there is a reasonable basis for believing that a series of recommended transactions, even if suitable when viewed in isolation, is not excessive and unsuitable for the customer. Especially when taken together along with the customer’s investment profile or future needs.
jaccomo MEETS WITH INTERGEN DATA
In January of 2020, jaccomo – a back-office provider with 21 years of history, 33 clients, and nearly $20 billion on their platform, knew they needed to address Reg BI, to keep out of conflict and to better their business. They had witnessed other institutions in recent news being fined for misselling, especially around annuities – jaccomo’s bread and butter.
Later that spring, jaccomo officially sat down with InterGen Data, following an exhaustive search for a company that could perform advanced data analytics and help jaccomo address the challenge of enhancing their service to their broker-dealers with regulatory compliant functionality that met all three sets of regulations. In short, jaccomo needed help with two specific things from InterGen Data:
- Help ensure there were no breaches of the regulations when advisors sell and discuss annuities with clients regarding “appropriate advice”.
- Help advisors drive sales with compelling insights into the future needs of prospective clients
The project would be housed as part of the company’s broad strategic program of Governance, Risk and Compliance. As such, jaccomo had specific questions about who InterGen Data was, and how they could help.
InterGen Data is a Life Event Prediction and Analysis company. As such, InterGen designs, engineers, and uses advanced and powerful AI analytics – alongside a proprietary data set, fully aligned with the wealth management sector. This gave the conversations between jaccomo, not only a highly technical feel, but a practical one as well, since both organizations were well versed in financial and wealth management needs and challenges.
InterGen Data set a due date for the proof of concept and jaccomo awaited the results.
PROOF OF CONCEPT PROCESS AND RESULTS.
The InterGen team began by using their recently designed module RUTH, to analyze the data, which would comprise real jaccomo client data and transactions. The scope of the proof of concept was based on a broker-dealer, servicing 3,000 clients, and generating about 12,000 annuity transactions per year.
After a few weeks, the InterGen Data team presented results of their work to the jaccomo sales and Marketing teams, as well as senior leadership.
- 92% of the 11,760 client transactions had insufficient data to withstand an audit.
- Of the remaining 923 transactions, 45.5% were “In Compliance”, and a further 44.5% could be considered Low to Moderate Risk.
- The remainder, however, were of Moderate or High Risk and required immediate Action.
Not only where the results of InterGen’s proof of concept insightful as to the nature of the current risk and regulatory concerns, they also provided a highly actionable process for completing next steps. So much so, that jaccomo was able to base their business case for investment around some of the results, and present their plan to the board – which was met with unanimous praise.